There are several clear reasons amidst recent policy changes why life insurance trusts make even more sense than in the past. When Donald Trump signed the Tax Cuts and Jobs Act of 2017 (TCJA) into law in December of 2017, it altered the estate planning market. The law raised the federal estate tax exemption from $5.49 million to $11.18 million. Many believed that this diminished their need for a life insurance trust to house their policy. However, even after TCJA, clients are still going to want a life insurance trust, and TOLI trustees will need to consider several facts.
Political winds change. Yes, Donald Trump campaigned against the estate tax in 2016. After the election, he did lower the estate tax burden. But others have different ideas. A swing of less than a quarter million votes out of the 213 million votes cast would have put Hillary Clinton (and her proposed higher estate taxes) into office. Nothing is assured, and though that last election may seem like it just ended, a new one is coming down the road. Bernie Sanders has proposed a lower estate tax exemption and rates that go to 77%. Other Democrats have similar plans. The estate tax has always been fluid. Will it continue to be?
Even if clients of TOLI trustees have no federal estate tax issue, taxes at death occur at the state level. Thirteen states currently impose some type of tax. These dollars are just as costly to the heirs of trustee clients.
The Asset Protection of a Trust
Besides tax relief, an irrevocable trust provides asset protection. The trust is a separate entity, so if clients are sued, the trust and its benefits will be secure and available for their heirs.
House Life Insurance In A Trust
Housing the life insurance in an irrevocable trust can protect other benefits for clients’ heirs. Potentially, one could limit government benefits to beneficiaries of life insurance if the benefits were paid directly. But by housing the life insurance in a trust, heirs may be able to collect from the policy while still taking advantage of the public benefits for which they are entitled.
The Terms Of Trust Distribution
The use of a trust to hold the policy gives clients the ability to set the terms of the distribution of the trust assets, including the life insurance benefit. This gives them more control over one of the most significant assets they have, even after they have passed away.
Family Estate Plans
The use of a trust solidifies a client’s estate plans and allows their family members to have discussions in order to pass down their assets free of government interference and minimize the legal issues that can occur around passing down wealth.
The Passage Of Separate Assets
A client takes comfort in the knowledge that a separate asset will be passed down to their heirs, free of any interference or reduction in value. This allows them to enjoy the assets they have put aside to live their life as they wish.
Our trust owned life insurance solution tolimonitor helps trustees navigate the administration of ILITs with their clients. To request a consultation, click here.