In the very near future, affluent individuals whose estates are larger than $1,000,000 exemption amounts may be subject up to a 55% Estate Tax. 

Therefore the wise use any means to avoid this tax.  Individuals and couples that are subject to the Estate Tax either now or in the future often consider using Irrevocable Life Insurance Trusts for the purpose of Estate Tax Mitigation.

Estate Tax Mitigation is as much art as it is science, and at Aspen Executive life our team of estate planning experts uses Irrevocable life Insurance trusts with great effect.

The current Estate Tax Exemption is $5 Million per individual and $ 10 Million per couple. Meaning that if you have an estate that is $ 10 Million or less if you were to pass away today you would owe no Estate Tax, however, read on as this will change. The current exemption of $ 5 Million is a large amount in light of previous exemptions and prevailing economic winds.  To recap the current exclusion is $ 5 Million in 2011 and 2012 but this exclusion is due to sunset at the end of 2012.

The current $10,000,000 exclusion sunset is highly unlikely to remain in place.  The Estate Tax or "Death Tax" is currently very much a hot topic in Washington. However, political leanings aside, it is my forecast that the Estate Tax will return to the Clinton era levels of $ 1 Million.

What does all of this mean to the high net worth individual who wishes to protect his or her nest egg from predation by the IRS?

What it means is that we use any and every tool possible to attempt to mitigate the Estate Tax. One of the most effective and efficient tools available for Wealth Transfer Management is the Irrevocable Life Insurance Trust. How these Trusts function is a Life Insurance Policy is put inside of a Trust which transfers the proceeds of said the Policy outside of the Grantors estate upon their passing thereby making the proceeds Estate Tax free. Annual Gifts are made to the trust, with which the trustee can make premium payments. An attempt is always made to keep these gifts within both the lifetime gift exclusion  of 1 Million Dollars and the yearly gift exclusion of up to $13,000 per beneficiary.

If the estate is extremely large this gets very complex and is outside the scope of this article, however in concert with our planning partners Aspen Executive Life uses a variety of other methods such as Grantor Retained Annuity Trusts in conjunction with the Irrevocable Life Insurance Trust very effectively even for estates at the highest levels.

Due to the nature of the Irrevocable Life Insurance Trust the beneficiaries must have a limited right to withdraw the gift for a short time after the grantor makes the gift. Also the Irrevocable Life Insurance Trust can be used with both existing and new life insurance policies however existing life insurance policies present challenges that are not present with new policies specifically designed with the trust as the beneficiary. An existing policy that is put into an Irrevocable Life Insurance Trust for the purposes of Estate Tax Mitigation is subject to a 3 year inclusion period. This means that the Death Benefit will still be subject to the Estate Tax for the 3 year inclusion period. Additional drawbacks to using a current policy in trust include the potential for the cash value of the policy being counted as a gift subject to the gift tax.

If the insured is still in good health it may be better and cheaper to use the cash value in the previous Life Insurance Policy to fund a new replacement Life Insurance policy to be put into the Irrevocable Life Insurance Trust.

Call Aspen Executive Life today to discuss your estate planning needs at 970-379-7777 or request a quote and we will contact you shortly.