The Role of Life insurance in Estate Planning

Life insurance plays several important roles in estate planning. The death benefits from a life insurance policy are counted by the IRS in the gross estate of the insured person when determining if the estate is liable for an estate tax (IRC §2042). Life insurance can provide liquidity to pay for any estate tax liability, thus avoiding the need to sell or use assets that are really meant to be given to loved ones.

Since life insurance proceeds can cause an estate tax liability, the estate planning attorneys at Momkus McCluskey, LLC assist clients to avoid this liability with the use of an irrevocable life insurance trust, or, ILIT. An ILIT is an irrevocable trust that is created for the main purpose of owning a life insurance policy. This trust cannot be modified, amended or rescinded in any way after it is created. This is so the grantor, the maker of the trust, cannot be considered the owner of the life insurance policy.

The ILIT also provides creditor protection. Since it is not owned by the grantor the life insurance proceeds are not subject to a creditor's claim. In addition, the Momkus McCluskey, LLC estate planning attorneys can also structure the ILIT so that the proceeds are not included in either the surviving spouse's estate or the children's estate.

The estate planning attorneys at Momkus McCluskey, LLC work closely with clients to maximize the use of life insurance in meeting their clients' goals any time a client is purchasing life insurance. There are other uses for life insurance in estate planning, as well, including the funding of buy-sell agreements related to businesses.

To schedule a consultation with an experienced estate planning attorney skilled in working with irrevocable life insurance trusts, contact Momkus McCluskey, LLC.