Everyone should have an estate plan – and everyone should have life insurance. Some might not realize that there are ways to combine both so their heirs benefit the most.
An estate planning attorney can help you put your life insurance policy in a trust. Done properly, your beneficiaries would not have to prove their right to inherit assets in probate court.
You can designate your life insurance policy so that the trust is its beneficiary; that way, your death benefits flow directly into the trust. There are two kinds of living trust that work for this.
The first is a revocable living trust. Your attorney would name the trust which as your beneficiary, which would add to the death benefits you may have already placed in the trust. The nice thing about a revocable living trust is that it can be changed at any time, for whatever reason. This method immediately ties your life insurance payout to the rest of your estate plan.
An irrevocable living trust is similar, except that once it is in place it cannot be changed.
Whichever you decide, putting your life insurance into a trust protect the money from creditors and potential estate taxes. For instance, if you had a brokerage account worth $2 million, your heirs would be subject to federal estate taxes. It also may end up in probate, which can take years to settle and is usually expensive.
If your heirs inherited a $2 million life insurance policy that in which they beneficiary is an irrevocable trust, the money would be safe from federal estate taxes. Florida does not have a state inheritance or death tax.
Regardless, you would be much better off if you inherited $10 million as the beneficiary of an irrevocable life insurance trust (ILIT). The money would pass outside of Jack’s estate, completely removing those proceeds from the nasty (40%) federal estate tax as well as any state death or inheritance taxes that may apply.
The trustee of the life insurance trust would also be able to pass that money along quickly and without the oversight of the probate court. Your inheritance would reach you faster and without the tax burden. In fact, most life insurance policy claims are settled within 30 days.
Our experienced and trusted estate planning attorneys have been serving Treasure Coast families for decades, and Michael Fowler is one of only nine attorneys in the state of Florida who is double board-certified in wills trusts and estates and in elder law. Contact us for your initial consultation at one of our conveniently located offices in Fort Pierce, Stuart, Port St. Lucie, Vero Beach, and Okeechobee.