When you’re establishing an estate plan in Texas, it can be tempting to set up a last will and testament and be done with it. However, there are other options available to you. Once you have your will written out, there are other things to consider, such as the financial burden your death will have on your surviving family. Even if you leave large sums of money to your family, your family might be subjected to hefty taxes.
People leaving large sums of money behind to their family or other beneficiaries might choose to use an irrevocable life insurance trust as part of their estate plan. This special type of trust keeps high-value assets from being subject to estate taxes.
How do estate taxes work?
If you leave behind property and assets to your family or other beneficiaries after your death, the federal government and some states will still tax the value of that property. Estate tax is collected against the market value of your property upon its transfer to your beneficiaries.
Unless there are specific plans in place, the beneficiaries will end up paying the cost of the estate taxes. That’s why some families choose to plan for estate taxes as part of the estate planning process.
How do irrevocable life insurance trusts help against estate taxes?
Irrevocable life insurance trusts keep large life insurance payouts from being counted in estate tax. The trust acts as owner and beneficiary of itself, acting as a middle man between the true beneficiaries and the high value assets it’s protecting.
Just because the irrevocable life insurance trust acts as its own owner and beneficiary doesn’t mean that your beneficiaries won’t have adequate access to it either. The trust will have beneficiaries listed who will be able to act as administrators and make changes to the account.
The potential downside of this type of trust is that it is hard to set up and can be expensive to create. Once it’s in place, it can’t be changed or amended like most other trusts. Doing your research should help you determine if this estate planning tool is right for your needs.
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