The passing of actor James Gandolfini and his estimated $30,000,000.00 estate have become a case history lack of proper tax planning. By some estimates up to 80% of the estate could be subject to taxes of up to 55%.
Proper ownership of life insurance is important if the insurance proceeds are to escape federal estate taxation. Typically an Irrevocable Life Insurance Trust or ILIT is the solution.
A life insurance trust is an irrevocable, non-amendable trust which is both the owner and beneficiary of one or more life insurance policies. Upon the death of the insured, the trustee invests the insurance proceeds and administers the trust for one or more beneficiaries. Since the insured does not own the policies, the proceeds can’t be taxed in the estate upon death.
The ILIT will also be designated as the primary beneficiary of the insured life insurance policy. After death the insurance proceeds will be deposited into the ILIT and held in trust for the benefit of the spouse during their remaining lifetime and the balance will pass to children and other beneficiaries.
An ILIT can also provide a quick source of cash to pay the estate tax bill and at the same time not increase the overall estate tax burden.
If possible, the trustee of the insurance trust should be the orginal applicant and owner of the insurance. If the insured transfers an existing policy to the insurance trust, the transfer will be recognized by the IRS only if the insured survives the date f the transfer by not less than three years. If the insured dies within this three-year period, the transfer will be ignored and the proceeds will be included in the insured’s taxable estate.
This article is for informational purposes only and is not meant to be a complete discussion of all benefits, risks, limitations, and costs. Consult the appropriate professional for financial, tax and legal advice prior to making any financial decision.”
About the Author: Charles Marsala is a Financial Advisor with Benchmark Investment Group with Securities offered through LPL Financial, a member FINRA/SIPC. He can be contacted at Charles.Marsala@lpl.com
He has owned two industrial supply businesses, was a partner in five Copeland’s Restaurant Franchises, and owned a Dun & Bradstreet Receivables Franchise for six Western States.
He served as Mayor of Atherton, CA during 2005-2006.