From our “Ask a Question” Mailbag: ILIT Benefits
Most Recently Updated August 1, 2018.
“My wife’s and my estates are worth about $3,000,000, including a one million dollar life insurance policy on my life. At my death, my wife will receive the benefits from that policy. Upon both of our deaths, our assets pass to my son. Now that the federal estate tax exemption is over five million dollars, does an Irrevocable Life Insurance Trust provide me any benefit?”
Don’t forget about the Pennsylvania Inheritance Tax!
You are correct: by using you and your wife’s exemption, you can easily avoid the 40% federal estate tax. But, if you die first and the life insurance passes to your wife, at her death that $1,000,000 is cash (not life insurance) and is subject to the 4.5% Pennsylvania Inheritance Tax. That is a $45,000 tax.
Instead, I can draft for you an Irrevocable Life Insurance Trust (ILIT) into which you can transfer your policy. As long as you live one more year after creating the trust, that $1,000,000 will then be available for your wife if she needs it but, at her death, it will avoid the $45,000 in Pennsylvania inheritance tax.
So to answer your question, an Irrevocable Life Insurance Trust can certainly provide you with a significant tax benefit.
More Planning Questions?
ILIT Benefits 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: ILIT Benefits
I hope that this article was helpful in explaining ILIT Benefits. 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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