In 2012, the Federal estate tax looms large with its 35% rate that can reduce the value of your legacy considerably. And if that was not enough, the maximum rate of this levy is rising to 55% next year as the exclusion goes down to just $1 million (it is $5.12 million this year).
When you are tallying up the value of your estate in an effort to see whether or not it is in taxable territory you have to understand the fact that the proceeds from life insurance policies that you own are part of your estate for tax purposes. So if you have some life insurance policies that will provide significant payouts you must be aware of this fact and do what it takes to gain tax efficiency.
One course of action that many people take is to create an irrevocable life insurance trust and have the trust purchase the life insurance policies. In this manner the beneficiary can receive distributions from the trust after your death, but because you did not technically own the life insurance policies personally they are not considered to be part of your estate by the tax man.
You could also place an existing policy or policies into the trust, but you must survive for three years after doing so in order to take advantage of the tax benefits.
If you would like to gain an in-depth understanding of irrevocable life insurance trusts, take action right now to arrange for an informative consultation with a seasoned and savvy Cleveland OH estate planning lawyer.