When planning an estate people are always trying to do whatever they can in order to avoid tax liability. One estate planning tool commonly used in Florida to accomplish this are irrevocable life insurance trusts. However, with the new estate tax threshold some experts are questioning whether life insurance trusts are still necessary.
Usually proceeds paid out through life insurance trusts are utilized for paying estate taxes, however since lawmakers have set the taxable threshold at $5.25 million for an individual and $10.50 for a married couple, life insurance trusts may no longer serve this purpose for many people. Estates are allowed to pass to a surviving spouse completely free from estate tax liability. On the other hand, heirs are only protected from estate tax up to the taxable threshold set by law.
People previously avoided this liability by placing taxable estate assets into an irrevocable life insurance trust. On the other hand, although estate taxes now may no longer apply for many people, one may still maintain life insurance after dissolution of a trust. However, whether or not one should keep the trust may depend upon if one’s net worth is expected to increase to over $5.25 million.
If Florida consumers do decide to dissolve their irrevocable life insurance trusts, most of the time simply stopping payment on them and then cashing them out will usually suffice. However, nobody knows what lawmakers will do in the future, especially with the potential of another economic crisis, which could prompt lawmakers to lower the taxable threshold. Therefore, it is important to have a full understanding of estate laws and any changes that could arise.