Having life insurance is a great tool in planning for your future and providing assurance for your family members after you die. But did you know that for tax purposes, the proceeds from a South Florida life insurance policy become part of your gross estate if you owned the policy during the last 3 years of your life? This occurs for over 90 percent of all life insurance policies. Your family receives life insurance death benefits, which is tax-free income that they will use to pay for funeral expenses, debt, estate taxes and to fulfill any other financial obligations. If your estate is valued over the $5 million estate tax threshold, anything pouring over that threshold will be taxed at a rate of 35 percent. This means that your life insurance will be taxed along with all the other assets in your estate. But don’t worry there is hope.
A qualified and well-experienced South Florida Estate Planning attorney can strategically structure your estate in order to shield your family from the bullets of such heavy taxation. This can be accomplished through the creation of an Irrevocable Life Insurance Trust (ILIT). This is a legal instrument that removes the life insurance from your estate and transfers the benefits into the ILIT. The result- less taxation and increased asset protection for your loved ones. Since the ILIT is a separate South Florida legal entity that is outside your estate, the IRS cannot impose a tax on the assets held in the trust because they are no longer within your control. You may designate your spouse, child, or other appropriate party as the beneficiary of the trust and provide detailed instructions to the designated trustee regarding management of the trust. This includes how you would like the life insurance payout to be distributed, when payments, loans or investments should be made, and when to terminate the trust. Establishing an ILIT today with a caring and knowledgeable attorney will ensure your family will be guarded against the burdens of heavy taxation and unnecessary liability in the future.
For more information on successful Florida estate planning and probate, please contact the South Florida law firm of Wild Felice & Pardo, P.A. at 954-944-2855 or via email at [email protected] to schedule your free consultation.
It’s a Wild world. Are you protected?