Wealth Preservation

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Example: The Smarts’ end up with an estate valued at $10M (after using their exemptions). In a conservative tax environment, how would estate taxes impact their heirs?

Value of taxable estate

$10,000,000

Less estate taxes at 55%

 -$5,500,000

Net to Heirs

  $4,500,000

 

With proper planning at age 42 and 41, the Smarts’ can remove assets from their taxable estate by making tax free gifts or loans to a Irrevocable Life Insurance Trust.

An Irrevocable Life Insurance Trust (ILIT) is a trust that owns a life insurance policy on an insured(s) instead of the insured owning the life insurance policy directly. Internal Revenue Code Section 2042 (2) allows life insurance proceeds inside of the ILIT to be excluded from the decedent’s estate.

 

Taxable Estate

 

Taxable estate after funding ILIT ($51k, 15 annual gifts)

 $9,235,000

Less estate taxes at 55%

-$5,079,250

Net to Heirs

 $4,155,750

 

Irrevocable Life Insurance Trust- Not Taxable

 

Life Insurance

 $7,500,000

 

Total Net to Heirs

 $11,655,750

 

 

The estate tax amounts specified in this presentation have been calculated based on gross approximations and simplifications of various characterizes of the estate in question. The estate’s actual tax liability may be significantly different from amounts specified in this presentation, which is intended for illustrative purposes only. Please consult your legal or tax advisor to determine a more exact amount of potential liability.