Content
Editorial
Events
News
Contact Us
Faith
Health
Astrology
Books
Bollywood
Fashion
Cuisine
Mental Health
Finance
Financial advice
Youth
Home
Archives
Advertisments
 


Nitesh Patel
Finance | Financial advice

Irrevocable Life Insurance Trust may Provide Flexibility During Estate Tax Uncertainty
By Nitesh Patel

Recent changes to the estate tax law and the Senateís rejection of a proposal to permanently repeal the federal estate tax leaves many wondering how important estate planning will be in the future. Will there be an estate tax? Trusts are frequently used to minimize estate tax liabilities, but in light of the estate tax uncertainty, is an irrevocable life insurance trust still a relevant tool and can it provide flexibility?

First, it is important to understand that there is an estate tax now, and there will probably continue to be an estate tax. The defeat of attempts to make the estate tax repeal permanent underscores this likelihood. Under the current law passed in 2001, the estate tax is phased down through 2009 and then goes away in 2010. However, the tax returns at a top rate of 55 percent for 2011 and thereafter. Additionally, many states are imposing state inheritance and estate taxes to restore revenue lost by the federal changes.

Life insurance can be a powerful estate-planning tool because it can replace income, provide liquidity at the insuredís death and serve as a vehicle for passing on assets to heirs. Choosing an appropriate ownership structure for a life insurance policy is important. In some situations, setting up a trust is the best solution to help remove assets from the taxable estate and minimize estate tax exposure.

An irrevocable life insurance trust (ILIT) often has a life insurance policy as its sole asset. A third party acts as the trustee and controls the property according to the trust terms - it cannot be revoked or modified by the insured. Life insurance proceeds are payable to the ILIT, which means they are not included in the grantorís estate, and therefore the trust and beneficiaries will receive the full amount of the proceeds free of estate and income taxes. An ILIT might be used, for example, when naming a spouse as the owner would create a tax problem and the children are minors.

If an ILIT is included as part of an estate plan, here are just a few of the flexible provisions that should be considered to accommodate possible changes in the future:

Trustee provisions:
Authority to access policy values during the insuredís lifetime.

  • For single-life policies, opportunity to name the spouse of the insured as trustee.

  • Power to add new beneficiaries or terminate the trust.

  • Option of appointing a corporate trustee to exercise broad discretion and provide long-term management.

    Other provisions:

  • Rights for the beneficiaries (and the insured with certain limitations) to replace the trustee.

  • Control over whether loans may be made by the insured (or others) to the trust or vice versa assuming armís length terms.

    Even if the estate tax is fully repealed, there are situations where keeping an ILIT makes sense. For example, a spendthrift provision would protect beneficiaries from creditors, professional management of assets could be helpful, or distribution restrictions may reduce the risk of unwise spending of assets.

    A good financial representative can help you determine if an ILIT is an appropriate solution for your estate planning needs. Working in conjunction with your legal and/or tax consultant, he or she can help estimate the value of your estate, determine tax liabilities and offer solutions for any particular situation. This expert should provide guidance through the kinds of life insurance available and develop an ownership structure to meet your estate planning needs.

    Nitesh Patel is a financial representative with the Northwestern Mutual Financial Network based in Clearwater for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin). To reach Patel, call (727) 799-3007 or e-mail nitesh.patel@nmfn.com.



  • Contact Information
    The Editor: editor@khaasbaat.com
    Advertising: advertising@khaasbaat.com
    Webmaster: webmaster@khaasbaat.com
    Send mail to webmaster@khaasbaat.com with questions or comments about this web site. Copyright © 2004 Khaas Baat.