Irrevocable Life Insurance Trusts Can Help With Taxes In Florida
October 24, 2012
When planning an estate it is best to have an overall financial plan that takes into account the consequences of tax law, especially estate taxation rules and regulations. There are many ways for Florida individuals to help their heirs maximize family inheritances, an important consideration in light of estate tax laws. One popular method is through the use of life insurance trusts.
When a person dies, many times his or her life insurance policies will be included in their estate. This is significant, since that fact could trigger estate taxation, depending upon the total amount of assets in the estate and current legislation. This could soon be even more relevant, considering that the federal estate tax exemption limit is set to be decreased in 2013, which means many people will be paying more estate taxes. However, whether this change will occur depends upon whether Congress decides to intervene to extend the estate tax exemption limit.
If the decrease does occur, it could potentially result in a variety of unwanted financial consequences, such as forced liquidation of assets when heirs cannot afford to cover estate taxes with available cash resources. That could mean selling a home or investment portfolio at lower than usual prices in order to obtain cash quickly to pay the estate tax. A life insurance policy, on the other hand, can provide heirs with available cash to help pay estate taxes. This is beneficial since life insurance benefits are not subject to taxation as long as they are not included in the estate but rather name a separate beneficiary or beneficiaries.
It is important that the life insurance policy is set up correctly to avoid estate taxation in Florida. One aspect which a person should consider when creating a policy is ownership. If the decedent owns the policy, the benefits received would increase assets attributed to the estate, which could cause liability to the estate tax. However, naming irrevocable life insurance trusts as owners of life insurance policies will make sure insurance benefits are not included in decedents’ estates. Those making estate planning arrangements should make sure that they fully understand all potential consequences of whatever plans they want to set in motion.
There are a number of strategies available to minimize estate taxes and maximize your legacy, an estate planning attorney can help you determine the perfect estate plan to accomplish your goals.