Frederick J. Kramer

Attorney and Counselor at Law

Elder Law and Estate Planning

LIFE INSURANCE TRUST

The death benefit value of the life insurance is an estate taxable asset upon the death of the insured. In other words, life insurance is added to all other assets a person dies owning and is subject to a potential federal and/or New York State Estate Tax. To the extent a surviving spouse is the beneficiary of any of these assets then there is no estate tax due upon the first to die. If however, assets do not pass to a surviving spouse then they become subject to estate tax if the value exceeds the exemption threshold for the year of death. The current New York State exemption threshold is $1,000,000.

If your life insurance represents a significant portion of your overall estate value it would be preferable to exclude it from potential future Federal and New York State estate taxation. The estate planning method frequently utilized and implemented to avoid estate taxation on life insurance is the Irrevocable Trust which becomes the owner of the life insurance policies. The federal tax law provides that as long as you can live through the three (3) year time period subsequent to your transferring ownership of the policies, then they escape estate taxation. Your spouse would be the lifetime beneficiary of the Trust and upon his/her death the remaining proceeds will be distributed to your children or held in Trust for them if they inherit before attaining a specific age.

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All website content © 2005, Frederick J. Kramer, Esq.