How Much Is Insurance For An 18 Year Old Boy Place Your Trust in Insurance and Your Insurance in Trust

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Place Your Trust in Insurance and Your Insurance in Trust

While benefits from a life insurance policy are not treated as income for tax purposes, if the life insurance policy was owned by the deceased within three years of their death, the deceased’s estate will be taxed on any amount of insurance proceeds above the estate tax threshold . Okay, now in plain English. If you take out a life insurance policy on your life, fund the policy during your lifetime, and leave the proceeds to your spouse or other family member, they will owe a lot of tax. So what can you do to avoid it?

Creating an Irrevocable Life Insurance Trust (or “ILIT”) will protect your family from the burden of estate taxes after you receive the benefits of a life insurance policy. This estate tax savings can be achieved either by the insured setting up an ILIT and giving the existing life insurance policies to the trust, or by having the trust itself purchase a new policy on the insured’s life. The insurance will be excluded from the insured’s estate because the insured will not own the policy at the time of death.

There are three requirements: (1) the insured must not own or retain any incidents of ownership in the insurance, (2) the proceeds must be paid to the trust and not to the estate, and (3) if the policy is given by the insured to the trust, the insured must survive the gift for 3 years . To avoid any gift tax consequences, simply borrow against your existing life insurance policy for the amount of equity/value the policy has already accumulated since its inception.

The ILIT also provides the advantage of instructing who gets the money, at what age they get the money and under what conditions they can get the money. For example, you wouldn’t want your 7-year-old to inherit $2 million in one lump sum. How much candy and video games do they really need? Instead, the ILIT can appoint a trustee and pay for the child’s needs until the child reaches the appropriate inheritance age, such as 18, 21 or 25. spend the inheritance frivolously.

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