Some Pennsylvania families look for any way that they can to reduce their estate taxes. One way to do this is through an irrevocable life insurance trust. While most life insurance policies are not taxable, there are exceptions. These trusts protect large life insurance proceeds from tax obligations.
Try to avoid the estate tax if possible
High-net-worth families could be forced to pay substantial taxes on their estates. There is an exemption up to $11.7 million, and families must pay a steep tax on amounts above that, requiring careful estate planning. This estate tax does not apply to most families, but if your estate is anywhere near that amount, you need to consider ways to reduce the size of your estate. Life insurance proceeds could be taxable if your estate is over the exemption.
Irrevocable life insurance trusts can help
If you create an irrevocable life insurance trust, it takes the policy proceeds out of your estate. First, you must give up all control of the policy and decision-making power to a trustee. When you do this, you cannot change the terms of the trust after that. It is permanent unless very limited exceptions apply.
Life insurance trusts can be complicated, but they may fit well as part of your overall estate plan. The trustee can invest and manage the money for the benefit of your children or other beneficiaries. This can be productive and save your family money.
You should contact an estate planning attorney to learn more about how to establish a plan that could help you and your family. An estate plan gives you the peace of mind that your family will be provided for when you are gone. Estate planning tools require some planning and forethought, so an attorney’s help may be beneficial.