Life insurance is a unique asset that can meet diverse objectives. It can provide liquidity to pay taxes, replace income after a death, create wealth to build an estate, pay estate settlement costs, pay off a mortgage, or buy out a business interest. Life insurance proceeds are received income tax free, but if your estate (including insurance) is greater than the applicable exemption amount (unified credit), insurance proceeds will be subject to estate taxes at the current rate of 40%.
You may legally avoid estate taxes on your insurance by having an Irrevocable Life Insurance Trust (ILIT) as the owner and beneficiary of your life insurance proceeds. Additionally, the ILIT may be drafted to provide asset protection to your loved ones.
For information on how to get started on your estate plan visit our Estate Planning Process page.