Keeping Insurance Proceeds Out of Your Taxable Estate


After you die, all of the belongings you owned in your particular person identify on the time of your demise can be listed in your Federal Property Tax Return. If the worth of your property is increased than the property tax threshold for that 12 months, an property tax can be owed. In 2011, the property tax threshold can be $1 million and the property tax can be a whopping 55 (fifty-five) %. Property taxes have to be paid in money inside 9 (9) months of demise. For each greenback you move over the primary million, your property can be taxed 55 cents. 1,000,000 {dollars} could sound like a big amount of cash however it’s actually fairly small when you think about that it contains life insurance coverage proceeds, the worth of your property, shares, financial institution accounts, retirement accounts, jewellery, work, and the rest that you’ll have had titled in your identify on the time you died.

One strategy to offering prepared money to pay these taxes and different bills is thru life insurance coverage proceeds. The proceeds could also be paid to the Federal authorities as an alternative of your heirs having to liquidate belongings with a purpose to pay the property tax invoice. Life insurance coverage offers an earnings tax free demise profit however the worth of the profit is added to the full of belongings within the property if not structured correctly. This creates a endless cycle of taxes and insurance coverage insurance policies. The way in which to keep away from this consequence, restrict or eradicate your property tax, and supply tax free cash to your beneficiaries is to carry the life insurance coverage insurance policies in an Irrevocable Life Insurance coverage Belief, or ILIT.

An ILIT combines the safety a belief with the liquidity of life insurance coverage advantages. Utilizing the $13,000 per 12 months present tax exclusion, you possibly can present belongings to the ILIT yearly to cowl the insurance coverage premiums with no tax consequence. At your demise, the proceeds are transferred to your heirs freed from all earnings tax and all property tax. This may present the mandatory liquidity your heirs might want to pay your funeral prices, property taxes, probate charges and settlement prices.

Upon your demise, the trustee of the ILIT will make applicable distributions of money proceeds to cowl money owed, taxes, and funeral bills. The trustee may even buy some or your entire enterprise with the money proceeds and professionally run the enterprise till your kids have been sufficiently old to take over. The trustee may additionally make applicable loans to the partner, kids, and enterprise.

An ILIT offers flexibility and tax benefits. For extra info on ILITs and to find out if they’re the fitting automobile for you, please contact your South Florida property planning lawyer.

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