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Wills, Trusts & Estates: Plain and Simple – Popular Again: Life Insurance Trusts to Hedge Against Estate Taxes

November 19, 2020

With the prospect of estate tax exemptions going down and estate tax rates going up, life insurance is being considered again to cover potential estate taxes. One way to use life insurance as a “hedge” against estate taxes is to include an Irrevocable Life Insurance Trust (an “ILIT”) as part of your estate plan.

Generally, people are unaware that the proceeds of life insurance are included in a decedent’s estate for estate tax purposes (assuming the decedent owned the policy). If the proceeds are payable to a spouse or a charity, a deduction is permitted equal to the proceeds, so no estate tax will be due on the proceeds. If the proceeds, however, are payable to anyone else, they will be subject to estate tax if the estate assets, including the proceeds, exceed the estate tax exemption amounts. While the estate tax exemption amounts are currently high, one must consider the strong possibility that exemption amounts will be reduced, and tax rates increased.

Reprinted with permission from Lloyd Harbor Life, November 2020. 

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  • Related Practice Areas: Trusts & Estates
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