Most people do not realize when they are sold a life insurance policy that the proceeds of the policy are included in the individual's gross estate when they pass away-assuming the policy is owned by the individual whose life is insured. Simply put, there are planning opportunities available to avoid this potential Federal Estate Tax pitfall when life insurance proceeds, which are Income Tax free to the beneficiary, are subject to Federal Estate Taxes upon the death of the insured. Properly establishing and funding an Irrevocable Life Insurance Trust (sometimes referred to as an "ILIT"), is a way to remove the life insurance death benefit from an individual's estate and potentially saving hundreds of thousands of dollars of unnecessary tax.
Having previously worked at a top tier accounting firm in South Florida with a wealth advisory wing, Chris Silversmith understands how financial products, including life insurance, function as part of an individual's estate plan. If you have a life insurance policy or a Life Insurance Trust that has not been reviewed in years, it could be beneficial to take a look at it to determine if the Life Insurance Trust and/or the life insurance policy still meet your needs.
As part of most estate plans, individuals execute a Financial Power of Attorney. In a Financial Power of Attorney, the creator (referred to as the Principal) needs to appoint an Agent. The Agent is there to step into your shoes and handle financial/business matters on your behalf in the event that you are unable to act for yourself-this can include times of incapacity. The Financial Power of Attorney document becomes invalid at death, but may be modified or revoked at any time during the Principal's lifetime.
Asset protection planning is for anyone seeking to protect their assets from potential creditors-it is not just for the super-wealthy.
Anyone can get sued. Lawsuits can stem from car accidents, credit card debt, bank foreclosures, or unhappy customers, among many other things. If someone wins a monetary judgment against you, the financial ramifications could drastically affect you and your family. To help keep your assets away from creditors, you should consider moving them somewhere that creditors may have a more difficult time reaching them. Asset protection techniques include maximizing contributions to IRAs, moving funds to an irrevocable trust, retitling various assets, and using limited liability companies or family limited partnerships.
It is important to note that asset protection planning should be done as a preventative measure, before you are sued. Under the law, you may not defraud current creditors. If a lawsuit has already been filed against you, or if you know you are going to be sued, and you transfer assets so that creditors can't reach them, a court may reverse the transfer. Because of this, it is a good idea to put a plan into place now before it's too late.
At Silversmith Legal, we can work with you to develop an asset protection plan that addresses your short and long-term financial goals.