Using a Crummey Trust to Shelter Life Insurance Proceeds

We've discussed Crummey Trusts recently, including the purposes of Crummey Trusts and their advantages and disadvantages. In this article, we discuss another purpose for a Crummey Trusts — sheltering life insurance proceeds from both gift and estate tax liability. Crummey Trusts are commonly used for this purpose.

Here's how it works. You have your estate planning attorney set up a Crummey Trust.  The trustee then purchases a life insurance policy on your life, naming the trust as the beneficiary. You make annual contributions to the trust to pay the premiums. As long as the premiums are less than the amount of the gift tax exemption ($14,000 in 2013), the trust contributions are not subject to gift taxes.

A Crummey Trust may be the best option for you if your life insurance proceeds will put your estate over the amount of the federal estate tax exclusion, which is $5.25 million in 2013. (The net value of your estate in excess of $5.25 million is subject to federal estate taxes. The net value of your estate is the value of your assets minus your debts.)

Since the trust owns the policy, the death benefit is paid to the trust when you die, shielding the policy's proceeds from federal estate taxes.

For more information about a Crummey trust or any other estate planning need, call an experienced will and trusts lawyer at the Peterson Law Group.  Our experienced Conroe, Texas attorneys help clients develop comprehensive estate plans. Call us at 936-337-4681 or 979-703-7014 or contact us online to arrange an appointment.