Related Attorney(s): Micah A. Bonaviri, Caroline Ford Bonaviri, David S. De Jong, Ann G. Jakabcin, David B. Torchinsky , Steven A. Widdes,Media Type: Alert
On December 17, 2010, President Obama signed a new tax law that modified the estate tax for 2011 and 2012. Specifically, a decedent dying during 2012 will have an exemption from estate tax of $5.12 million. Any assets with a value in excess of this amount will be subject to a 35% estate tax. These federal laws are only temporary and we are unsure what the laws will be for 2013.
Although the federal estate tax exemption is currently $5.12 million, the Maryland and D.C. estate tax exemptions are $1 million today while no estate tax is imposed in Virginia. The federal and especially the state exemption amount can be used up quickly by life insurance death benefits that, while typically income-tax-free, are includable in your estate if you own the policy or have rights to it.
A properly drafted Irrevocable Life Insurance Trust (“ILIT”) provides a number of useful estate planning benefits. Perhaps the most common reason to use an ILIT is to remove the life insurance proceeds from both the grantor’s and the spouse’s taxable estate while allowing the proceeds to be available to meet the needs of the surviving spouse and descendants. However, it is important to ensure that the grantor does not retain any “incidents of ownership” over the policies that would cause the insurance proceeds to be included in the grantor’s estate. Accordingly, the ILIT is intended to be the owner and the beneficiary of the life insurance policy.
There are additional reasons why an ILIT may be useful:
A properly drafted ILIT can accomplish many estate planning objectives. However, because of strict IRS guidelines, it is crucial that certain drafting and procedural requirements be followed to ensure that the beneficiaries realize the full benefits offered by the ILIT.
If you have any questions about this or other estate planning issues, please call 301-340-2020.
Estates + Trusts Law at Stein Sperling
Stein Sperling’s Estates and Trusts practice provides a broad range of services that include the organization and development of estate plans, assistance in the administration of trusts and estates, and working with clients step-by-step through the probate process. Our attorneys combine experience, knowledge and the practical applications of estate, trust, business and tax laws with innovative approaches designed to meet clients’ needs and objectives.