Life Insurance Trusts

A variety of strategies and instruments exist that can reduce the tax burden to an estate, among them the irrevocable life insurance trust. A Bryan-College Station, Texas estate planning attorney can help with the writing of such a trust, but the following is a brief overview of how it works.

Description of the Trust

A problem with substantial life insurance policies is that, upon the death of the owner, the value of the policy is added to the estate. This can cause a substantial increase in estate taxes that ultimately will be the responsibility of the beneficiaries.

A life insurance trust removes this added burden by becoming a part of a separate Trust that is no longer technically under the ownership of the insured. Premiums on the policy are then paid out of the trust until the death of the insured, at which point the proceeds become payable to the Trust rather than becoming a part of the estate for tax purposes.

Limitations

A Bryan-College Station, Texas estate planning attorney will study a client's circumstances and provide assistance in determining whether a life insurance trust is right for him or her. These trusts do have limitations which need to be taken into consideration prior to creating the trust:

• Should the owner of the policy die within 3 years of its transfer to the Trust, it will be returned to, and included in the estate for the purposes of tax.
• When a spouse is the beneficiary, it is vital that separate property cash funds be used to pay the premiums.
• If the premiums on the trust are high, a lawyer may need to write “hanging powers” into the agreement to avoid a gift tax.

Properly written and implemented, an irrevocable life insurance trust can be a good way to provide for the needs of survivors while avoiding certain tax liabilities.

For Further Information

An experienced Bryan-College Station, Texas estate planning attorney can provide assistance and answer questions related to wills & trusts issues. Call the Peterson Law Group to make an appointment at 979-703-7014 or fill out our online contact form.