Policy ownership is what determines whether the policy is included in a person's estate for estate tax purposes. Having someone else own the policy will keep it out of the estate, but you also lose some control. The owner, not the insured, has control over the policy, so having someone else own the policy can be risky.
Irrevocable Life Insurance Trusts could be used in large estates, but is overkill for most people. Keeping the life insurance out of your estate for tax reasons may not be a big issue but it depends on the total size of your estate and what trade-offs you are willing to accept to keep the insurance out of your estate.
President, The Firm of Steven H. Kobrin, LUTCF, 6-05 Saddle River Rd #103, Fair Lawn, NJ 07410
First of all, I need to stress that you should talk to an estate planning attorney about this topic. We life insurance guys know our way around the block here, but frankly, you should talk to an expert. Same as anything else where you need the best advice possible.
Make sure it is an attorney who does specialize in estate planning. Real estate attorneys have their own area of expertise, as do commercial attorneys. Talk to somebody who knows the ins and outs of estate taxation.
But, I can talk in generalities.
If you own your life insurance, it would be included in your estate. If your spouse owns it, it would be included in his or her estate.
Does any of this matter?
It does if you want to avoid or minimize estate taxation when your estate is settled. This means keeping both the state and federal tax people out of the picture to the greatest extent possible.
How can you do this?
Well, since the ownership of assets is the key trigger in determining into whose estate money falls, then you can be creative with the ownership designation of your policy. It could be a trust. It could be another relative, such as an adult child. It could be your business.
How do you make this decision?
This is where you talk with your estate planning legal expert and explore the ramifications of each choice. Taxation is not your only concern. There are issues related to control of assets as well.
With the right guidance, you can put together a plan that gets the job done.
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You can avoid this by having a named living beneficiary on the policy. Then it will bypass the estate entirely.
It is usually not advisable to have the estate listed as a beneficiary. That would defeat one of the main advantages of life insurance.
Irrevocable Life Insurance Trusts could be used in large estates, but is overkill for most people. Keeping the life insurance out of your estate for tax reasons may not be a big issue but it depends on the total size of your estate and what trade-offs you are willing to accept to keep the insurance out of your estate.
Make sure it is an attorney who does specialize in estate planning. Real estate attorneys have their own area of expertise, as do commercial attorneys. Talk to somebody who knows the ins and outs of estate taxation.
But, I can talk in generalities.
If you own your life insurance, it would be included in your estate. If your spouse owns it, it would be included in his or her estate.
Does any of this matter?
It does if you want to avoid or minimize estate taxation when your estate is settled. This means keeping both the state and federal tax people out of the picture to the greatest extent possible.
How can you do this?
Well, since the ownership of assets is the key trigger in determining into whose estate money falls, then you can be creative with the ownership designation of your policy. It could be a trust. It could be another relative, such as an adult child. It could be your business.
How do you make this decision?
This is where you talk with your estate planning legal expert and explore the ramifications of each choice. Taxation is not your only concern. There are issues related to control of assets as well.
With the right guidance, you can put together a plan that gets the job done.