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Life Insurance Trusts

ESTATE TAXES AND LIFE INSURANCE PAYOUTS

The Law Offices of Kennedy & Jackson
Houston, Texas
713-783-7444 | Email

Did you know? Life insurance policy payouts are included in the gross value of an estate for the purpose of calculating the estate tax?

A life insurance trust is a legal instrument, a type of irrevocable trust that you establish during your lifetime to remove the life insurance payout from the gross estate.

WHAT HAPPENS TO A LIFE INSURANCE POLICY WITHOUT A LIFE INSURANCE TRUST?

Without a life insurance trust, the beneficiary of the life insurance policy will receive only a percentage of the actual value of the death benefit, because the gross amount of the policy payout will be subject to estate taxes (for example, 45 percent in 2008).

Without a life insurance trust, you — the insured — will have no control over how the life insurance policy proceeds are spent or invested. For example, if the named beneficiaries of the policy are your young adult children, you may prefer that your children not receive the policy payout in a lump sum out of concern for reckless spending.

WHAT IS A LIFE INSURANCE TRUST?

To set up a life insurance trust, the owner of the life insurance policy transfers ownership of the policy to a trust. The life insurance trust is irrevocable, which means that the policy owner cannot get back ownership of the insurance policy. Upon death, the death benefit is paid to the trust for the benefit of the named beneficiary (or beneficiaries) without being subject to estate taxes.

Life insurance trusts must be established with extreme caution and forethought, because they are irrevocable and the beneficiaries cannot be changed once named in the trust.

COMPREHENSIVE LEGAL ADVICE REGARDING LIFE INSURANCE TRUSTS

At The Law Offices of Kennedy & Jackson, located in Houston, Texas, we have significant experience evaluating estates of various sizes and advising our clients on the relative advantages and disadvantages of establishing life insurance trusts as part of an overall estate planning and asset protection plan.

Our attorneys are each board-certified in estate planning and probate law by the Texas Board of Legal Specialization. We take professional pride in our ability to make clear explanations of complex estate planning laws, such that our law firm’s clients can make well-informed decisions about financial matters that will affect future generations of their families.

CONTACT THE LAW OFFICES OF KENNEDY & JACKSON

Our law office is located in the Galleria area of Houston, with free on-site parking available next to our office building. We provide a complimentary — and confidential — initial consultation to all new potential clients.

To schedule an appointment with one of our lawyers, call 713-783-7444 or send us an email.