The new tax law promises many sweeping changes including a decrease in taxes for most Americans. It is also going to make changes in estate taxes which may have some people worried as they have made plans based on an old law. One step that many have taken in the past to reduce estate taxes might be a problem due to the nature of that strategy. That strategy is the irrevocable life insurance trust. Irrevocably rearranging this type of trust to mesh with a new law will be impossible. However, in most cases, that still won’t be a problem.
The Irrevocable Life Insurance Trust
An irrevocable life insurance trust is set up to protect the life insurance proceeds from estate taxes. To do this properly, the trust has to be irrevocable. No changes of any kind can be made and the grantor cannot reclaim any ownership of the property they contributed to the trust. That is how the money from the life insurance can pass on without being subject to estate taxes.
The trust agreement is between the grantor and a trustee who is charged with administering these life insurance proceeds for the beneficiaries’ benefit. Many trust departments in banks are used as the trustee in this scenario. However, proceeds may be subject to estate taxes if the grantor passes away within three years of the trust being set up.
Tax Law Effect on Beneficiaries
As for the new tax law, there are other reasons besides avoiding estate taxes that will make this strategy still used by others in the future. If the beneficiaries are young, for instance, the trust can be the beneficiary and the trustee will have the duty to distribute the benefits the way the grantor has instructed.
The help of an estate planning professional will be necessary to help you with this new law and the changes that may affect you and your heirs. Rushing & Guice has all the information on the new tax plan and will be your ally in using tried and true strategies like the irrevocable life insurance trust and other estate planning measures that will provide asset protection for your heirs in the future.