This article is the second in a series of estate planning articles related to irrevocable life insurance trusts.
The irrevocable life insurance fund isn’t just for the wealthy with real estate worth over $5.25 million. This type of trust may be useful for asset protection for medium-sized real estate to provide protection from potential lawsuits and claims.
For example, when a trust holds a life insurance policy, the cash value (if any) and proceeds are also protected from potential creditors’ claims. As part of your estate planning, you may arrange for a set amount of savings to be transferred to the trust annually and the money in the Irrevocable Trust will be used for payment in accordance with this policy. Over time, a significant amount of value can be created in an irrevocable life insurance fund.
For example, one of my forty-two (42) year old clients had an income large enough to turn the cap of $14,000 annually without gift tax consequences. Therefore, as part of her estate planning, we have set up a life insurance fund for her to achieve the following asset protection benefits:
- The deposited funds are transferred annually each year and the proceeds of the plan are fully protected against claims of creditors and potential lawsuits.
- Transferred funds worked similarly to a 401k plan in that the money grew and accumulated without any income taxes.
- Any trust needs can be withdrawn from the monetary value of the policy.
- Upon her death, the proceeds of the plan will be available to her family while avoiding any income or estate tax.
Establishing an irrevocable life insurance fund may be a viable option in your estate planning process when using a viable method of protecting assets against creditors, thus protecting your family estate from any future legal action. There are many options to explore in the estate planning process and a life insurance fund is just one of the many tools worth considering with an asset protection attorney.
Therefore, before creating a non-cancellable life insurance fund for your estate plan, you may want to meet with an attorney to discuss and handle the formulation of your estate planning tools to ensure that the maximum benefit from the irrevocable life insurance fund is achieved by the insured.
This article reflects my personal opinions only and is not construed to create an attorney-client relationship. The case information in this article is for illustrative and educational purposes only. The article is not intended to provide any specific legal advice. Article topics may or may not be updated and entries may be out of date at the time you view them.