When Donald Trump signed the Tax Cuts and Jobs Act of 2017 (TCJA) into law in December of 2017, the estate planning market was altered. The law raised the federal estate tax exemption from $5.49 million to $11.18 million, and many believed the need for a life insurance trust to house their policy was diminished. However, even after TCJA, there are several excellent reasons to have a life insurance trust, and the policy owner should consider these facts.
- Political winds change. Yes, Donald Trump campaigned against the estate tax in 2016, and 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 you have no federal estate tax issue, taxes at death (estate and inheritance) do occur at the state level with thirteen states currently imposing some type of tax. These dollars are just as costly to your heirs.
- Besides tax relief, an irrevocable trust provides asset protection. The trust is a separate entity, so if you are sued, the trust and its benefits will be secure and available for your heirs.
- Housing the life insurance in an irrevocable trust can protect other benefits for your heirs. Potentially, government benefits could be limited to beneficiaries of your life insurance if the benefits were paid directly. But by housing the life insurance in a trust, your heirs may be able to collect from the policy while still taking advantage of the public benefits for which they are entitled.
- The use of a trust to hold the policy gives you the ability to set the terms of the distribution of the trust assets, including the life insurance benefit. This gives you more control over one of the most significant assets you have, even after you have passed away.
- The use of a trust solidifies your estate plans and allows your family members to have discussions around the passing down of your assets free from government interference and minimizes the legal issues that can occur around passing down wealth.
- The comfort in knowing a separate asset will be passed down to your heirs, free of any interference or reduction in value, allows you to enjoy the assets you have put aside to live your life as you wish.
By taking advantage of a life insurance trust, you can rest assured that your financial goals will be met, enjoying the fruits of your labor, secure in the knowledge you will be passing along a significant asset to your heirs.