One important thing to remember about estate planning are the potential tax burdens that may arise after someone passes away. Specifically, beneficiaries may need to pay federal estate taxes when they inherit under a Will. In other scenarios, the federal government may also collect payment on the value of gifts.
It is crucial to note that the benefits under a life insurance policy can quickly inflate the value of an estate. One way to avoid a life insurance policy from contributing to the value of an estate is to place that policy in a Cary Irrevocable Life Insurance Trust. These testamentary instruments leave a policy in the hands of a trustee who will distribute the funds to beneficiaries only after the subject of the policy dies. A knowledgeable trusts attorney can help you understand how to use this estate planning tool to your benefit.
The creation of a Trust is a common way for people to avoid complex probate proceedings. Property in a Trust does not need to go through probate court and can go directly to a beneficiary. According to North Carolina Revised Statutes § 36C-4-401, the creating a Trust can be as simple as selecting assets, nominating a trustee, and naming a beneficiary.
Placing life insurance benefits into a Trust can serve many purposes. Primarily, this is a way for people to avoid tax burdens that may come from a sudden influx of cash into an estate. Placing life insurance benefits into Trust takes them out of a party’s estate when they die.
However, it is important to remember that Irrevocable Life Insurance Trusts are permanent. A party who places their benefits into a Trust can no longer access them. In addition, they cannot cancel, change, or otherwise modify the terms of the Trust. For this reason, it is essential to consult an experienced attorney on the legal effect of an Irrevocable Life Insurance Trust in Cary.
Many estates will gain a significant portion of their value as a life insurance benefit. Even a policy that carries a value of a few hundred thousand dollars can easily eclipse the total value of a person’s other assets. As a result, a death that results in the payment of life insurance benefits could result in that estate crossing the threshold for the federal estate tax.
A skilled local attorney can facilitate the correct use of an Irrevocable Life Insurance Trust to help circumvent this problem. Assigning one’s rights to life insurance benefits into a Trust takes those assets out of a person’s hands. This means that they are not subject to estate taxation.
However, this is only possible if a person acts quickly. The asset must remain in Trust for at least three years to be effective in lessening tax burdens. An attorney in the area can explain the ways in which an Irrevocable Life Insurance Trust could help lessen taxes on a Cary estate.
Proper asset management is key to effective estate planning. For many people, this may include planning for benefits that they will receive under a life insurance policy. Especially in situations where policies are worth millions of dollars, these benefits could leave an estate vulnerable to significant taxes.
One way to avoid making these payments is to place life insurance benefits into a Trust. A Cary Irrevocable Life Insurance Trust allows for the tax-free transfer of assets after a person dies. As long as the Trust is in effect for three years prior to a former owner’s death, the government cannot touch the funds. A dedicated attorney at our firm can help to draft these documents and determine whether this estate planning tool is right for you.