Tax Planning for Proceeds of Life Insurance
Life insurance policies raise a number of legal, tax and estate administration issues. Without proper planning, the proceeds of a life insurance policy can complicate gifting and burden beneficiaries with unnecessary estate taxes.
The estate planning attorneys of Cushing & Dolan, P.C., can explain the merits and pitfalls of an irrevocable life insurance trust, commonly known as an "ILIT". We serve a diverse clientele in the Boston area, and throughout Massachusetts, New Hampshire, and beyond. Contact us today for a free consultation.
Irrevocable Life Insurance Trust Lawyers
The death benefits from a life insurance policy are paid directly to the designated beneficiary, outside of the probate process. The proceeds are also income tax free to the recipient (usually the surviving spouse).
However, that money is not only includible in the decedent's taxable estate, but also becomes part of the estate of the surviving husband or wife, and is potentially subject to estate taxes when that spouse dies. If the life insurance benefits would inflate the decedent's and beneficiary's total estate above the state or federal "death tax" threshold, then the policy should be owned by an irrevocable life insurance trust.
The experienced tax attorneys of Cushing & Dolan can counsel clients on how to establish and fund a life insurance trust to maximum advantage for the loved ones who will inherit. Ideally, the trust should purchase a new policy, but we can address issues in incorporating existing life insurance policies. An ILIT can also be used to pay any estate taxes that come due.
Cushing & Dolan also assists clients with annual maintenance of Irrevocable Life Insurance Trusts, including the Crummey notices required for all contributors to qualify for annual gifting exclusions. Failure to properly administer an ILIT can create unnecessary gift and estate tax implications.
Contact Experienced Boston Trust Lawyers
Call 617-523-1555 or contact us online to arrange a free consultation about life insurance trusts in the context of your broader estate planning goals. We have six convenient office locations in the Greater Boston area.