With the limited free-time you have outside of work, drafting a sound estate plan is usually not the first thing on your list of chores. However, a simple overlook can cost you money. When discussing an estate plan, more and more people have begun to inquire about Irrevocable Life Insurance Trusts (ILIT). An ILIT is a unique estate planning tool utilized to help minimize taxes â€“ estate or gift, by reducing the size of your estate.
This trusted tool has saved individuals hundreds, if not thousands of dollars by limiting the amount of taxes paid upon their death. Although commonly used to effectuate a goal, many still hesitate to implement this tool as part of their overall estate plan.
With the ever-changing demands of society, it has become essential for you to carry some form of life insurance to ensure your loved ones are taken care. The amount of coverage varies depending on your family and your current lifestyle. However, there is no dispute that carrying life insurance is no longer a luxury, but rather a necessity.
Many are unaware that without proper planning life insurance proceeds become subject to federal estate taxes. This is something often overlooked until you realize the sizable amount of estate taxes you pay. The State of Michigan includes life insurance proceeds in your estate if you claim â€œincidents of ownershipâ€ over the policy; for example, being able to change your beneficiary; borrow from your policy; or exercise any other right that is usually possessed by an owner. By giving up these rights you are assured to have your proceeds excluded from your estate.
Another option is to list your spouse as the beneficiary. This too, reduces the value of your estate, as the proceeds will be excluded, but donâ€™t be fooled into thinking the planning stops here. What happens when your spouse passes away? The amount your spouse inherited will be counted in his/her estate. Therefore, although you possibly avoided estate taxes upon your death, you have not completely solved the problem. This is where the effectiveness of an ILIT is best illustrated.
An ILIT is an extremely useful tool used to help minimize your estate taxes. With the estate tax exemption being widely speculated to hit pre-2001 figures, $1 million exemption at a 55% tax rate, ILITs are increasingly becoming the most popular estate planning tool. Remember, planning for today will serve you no protection for tomorrow; but planning for tomorrow will serve you protection for today.
Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Business Litigation, Corporate Formations, and Family Law. He can be contacted for any questions related to this article or other areas of law at email@example.com or (517) 381-2663.