Estate taxes.

Everyone wants to have enough money to have to pay them, and everyone wants to avoid them.

Well, today you’re in luck. I’m going to teach you about one way to effectively pay no estate tax.

Why “effectively”?

Because you’re not technically going to pay zero estate tax.

But it will be something like a 95% discount.

What vehicle am I talking about to do this?

The Irrevocable Life Insurance Trust (ILIT for short, as in eye-lit).

Today we’re going super high-level, and in the next few weeks we’ll go a little deeper and provide some different examples of ways people can use ILITs to reduce their estate tax liability.

Before I get to that, I want to remind you of why you should be reading this:

If your assets are over $2.2m (including life insurance, the equity in your house, retirement accounts, etc.) when you die you will face some estate tax liability.

So, if that’s you or it could be you, pay attention. :)

Here. We. Go.

At a super high level, an ILIT is an irrevocable trust.

This means once you create it you can’t change it. Period.

Also, as the name suggests, this specific type of irrevocable trust is designed to hold life insurance policies as its primary asset (with the policy usually on the life of the trust creator – so when they die a payout happens).

The beneficiary CANNOT be the creator of the trust.

The trustee CANNOT be the creator of the trust.

If created correctly, when the creator of the trust dies, any assets in the ILIT are NOT counted as part of the trust creator’s estate.

The idea is, when the trust creator dies, the life insurance policy pays out to the irrevocable trust, and the proceeds can be used to pay off the estate tax liability of the trust creator.

For example, if you know you’ll owe $2m in estate taxes when you die, you can create an ILIT, fund it with a term life insurance policy, pay $455/year to fund the policy, and when you die you’ll receive $2m for the amount of premiums you’ve paid.

See? Pennies on the dollar.

Hopefully that makes.

We’ll dive in deeper next week.

Talk to you then!

Cheers,

Christopher Small
CMS Law Firm LLC

PS – don’t keep this estate planning stuff to yourself – you know it’s important and we LOVE referrals!

PPS – note for CLIENTS – our office will be CLOSED December 25-January 1. If you are planning on waiting until the end of the year to get started or get done, don’t wait too much longer!