Happy Sunday!

I thought I’d take today to dive into an example of how to use a life insurance trust that will be applicable to many of you and is EASY to implement.

In our hypothetical, we have Jane and John.

Jane and John have an estate totaling $8 million in assets.

Of that estate, they each have a term life insurance policy for $1 million dollars (so a total of $2m in life insurance between the two of them).

The policies are 20 year term policies and have 15 years remaining on them.

If nothing changes, and assuming they have a credit shelter trust, their estate tax liability when the surviving spouse dies will be approximately $550k.

To reduce this amount significantly they could create a revocable life insurance trust.

The trust could have the same distribution provisions as their credit shelter trust (presumably some distribution over time to the children) AND the express instruction to use any proceeds in the trust to pay estate tax liabilities.

After the trust is created each life insurance policy would be transferred into the trust (the trust would own and become the beneficiary of the policy).

There are no gift tax issues here because the policy, as a term, has no present day value.

By moving those policies into the irrevocable life insurance trust, the total estate value is now $6 million (instead of $8m).

The total tax obligation is now $240k instead of $550k.

AND because the life insurance policies are paying the tax, the true “payment” of that tax by Jane and John would be limited to the amount that they paid for the insurance premium (which would likely be less than $200/month).

Bottom line – significant savings.

AND, as a bonus, if Jane and John wanted to, they could each gift $15k into the trust per year per child and let that money begin to grow outside of their estate (i.e. no estate tax).

Hope this makes sense. If you have questions, just shoot me an email.

Cheers,

Christopher Small
CMS Law Firm LLC

PS – if you want some nuts and bolts estate planning and probate info you can see all of it on my YouTube channel – http://www.youtube.com/c/CMSLawFirmLLC

And PPS – if you need help with estate planning or probate the easiest thing to do is click the link and book a time to chat – https://cmslawfirm.com