From our “Ask a Question” Mailbag: Irrevocable Life Insurance Trust and Saving Federal Estate Tax Payable at Death

Most Recently Updated August 1, 2018.

“My CPA told me that I should form a trust to help the save federal estate tax payable at my death. I think he may have called it a Revocable Living Trust. Is that good advice?”

Irrevocable Life Insurance Trust and Saving Federal Estate Tax Payable at Death

Irrevocable Life Insurance Trust and Saving Federal Estate Tax Payable at Death

Revocable Living Trusts

Your CPA was likely talking to you about several different trusts that might be useful to you. Some trusts can reduce the federal estate tax and others do not. A Revocable Living Trust is a useful tool and your CPA might have mentioned it as a tool to avoid probate, but it does not help reduce the federal estate tax. A revocable trust can be revoked, and the assets taken back into your own name, so it is still part of your taxable estate.

Irrevocable Trusts

Your CPA likely also mentioned an “Irrevocable Trust.” An irrevocable trust can be designed so the assets you put into the trust can never come back to you and are not taxed at your death. For example, a typical irrevocable trust is the Irrevocable Life Insurance Trust (ILIT) which, when drafted correctly, can remove your life insurance from your taxable estate. This can provide huge savings because the federal estate tax rate is 40%. If you use an Irrevocable Life Insurance Trust to remove a $2,000,000 policy from your taxable estate it provides an $800,000 savings. As I charge from $1,500 to $2,500 to draft an Irrevocable Living Trust (depending on the complexity) that is a huge return on investment.

More Planning Questions?

Trusts are only a piece of the Estate Planning process. By all means, if you want to learn more, please read my more detailed article, Estate Planning Everything You Need to Know.

In Conclusion: Trusts

I hope that this article was helpful in explaining trusts. Further, I included links to even more detailed information on my website so you can learn more. Therefore, please contact me and let me know how I did. Certainly, your comments and questions are welcome!

Let our Estate Planning lawyers help walk you through what can be a confusing process. To begin with, call to speak to one of our experienced estate planning lawyers.  By all means, our lawyers are ready to answer your questions. In fact, feel free to contact our office for a free consultation. Ultimately our goal is to make the process as painless as possible!

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