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If you have a life insurance policy, you may want to ensure that the benefits your family will receive after your death won\u2019t be included in your estate. That way, the benefits won\u2019t be subject to federal estate tax.<\/p>\n
Current exemption amounts<\/strong><\/p>\n For 2021, the federal estate and gift tax exemption is $11.7 million ($23.4 million for married couples). That\u2019s generous by historical standards but in 2026, the exemption is set to fall to about $6 million ($12 million for married couples) after inflation adjustments \u2014 unless Congress changes the law.<\/p>\n In or out of your estate<\/strong><\/p>\n Under the estate tax rules, insurance on your life will be included in your taxable estate if:<\/p>\n It\u2019s easy to avoid the first situation by making sure your estate isn\u2019t designated as the policy beneficiary.<\/p>\n The second rule is more complicated. Just having someone else possess legal title to the policy won\u2019t prevent the proceeds from being included in your estate if you keep \u201cincidents of ownership.\u201d Rights that, if held by you, will cause the proceeds to be taxed in your estate include:<\/p>\n Be aware that merely having <\/em>any of the above powers will cause the proceeds to be taxed in your estate even if you never exercise them.<\/p>\n Buy-sell agreements and trusts<\/strong><\/p>\n Life insurance obtained to fund a buy-sell agreement for a business interest under a \u201ccross-purchase\u201d arrangement won\u2019t be taxed in your estate (unless the estate is the beneficiary).<\/p>\n An irrevocable life insurance trust (ILIT) is another effective vehicle that can be set up to keep life insurance proceeds from being taxed in the insured\u2019s estate. Typically, the policy is transferred to the trust along with assets that can be used to pay future premiums. Alternatively, the trust buys the insurance with funds contributed by the insured. As long as the trust agreement doesn\u2019t give the insured the ownership rights described above, the proceeds won\u2019t be included in the insured\u2019s estate.<\/p>\n The three-year rule <\/strong><\/p>\n If you\u2019re considering setting up a life insurance trust with a policy you own currently or simply assigning away your ownership rights in such a policy, consult with us to ensure you achieve your goals. Unless you live for at least three years after these steps are taken, the proceeds will be taxed in your estate. (For policies in which you never held incidents of ownership, the three-year rule doesn\u2019t apply.)<\/p>\n Contact us if you have questions or would like assistance with estate planning and taxation.<\/p>\n \u00a9 2021<\/em><\/p>\n <\/body> If you have a life insurance policy, you may want to ensure that the benefits your family will receive after your death won\u2019t be included in your estate. That way, the benefits won\u2019t be subject to federal estate tax. Current exemption amounts For 2021, the federal estate and gift tax exemption is $11.7 million ($23.4 […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,6,10],"tags":[8,11,12],"class_list":["post-15379","post","type-post","status-publish","format-standard","hentry","category-articles","category-individual-tax","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15379","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=15379"}],"version-history":[{"count":0,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15379\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=15379"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=15379"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=15379"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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