Permanent life insurance is an often overlooked or underutilized asset class. With proper irrevocable trust planning, permanent life insurance can provide totally income tax-free and estate tax-free liquidity upon death to efficiently address estate taxes and keep families wealthy. The uniqueness and elegant simplicity of pairing permanent life insurance with irrevocable trust planning is the missing link that should be considered by many families.
For wealthy taxpayers with estate tax payment exposure, considering that the federal and Illinois estate taxes: (i) are incurred upon the death of a single person, and upon the death of the surviving spouse, (ii) are generally payable within only 9 months after the pertinent death, and (iii) can involve the highest 40% federal estate tax rate and 16% Illinois estate tax rate, totally tax-free, in-trust permanent life insurance can help preserve other family assets (i.e., family businesses, real estate, limited partnerships, private placement assets and other illiquid assets, etc.) from the devastation of fire sales, inability to sell, rushed decision-making, and sometimes unnecessary friction with the Internal Revenue Service or the Illinois Attorney General’s office. The taxing authorities only take cash payment, and the payment is generally due within only 9 months.
So, many taxpayers need to ask themselves where is the family going to find the cash to pay the estate taxes within such a short time? Is it in the family’s best interests to be forced to sell a business, a building, other real estate, a key investment position or other asset class to pay estate taxes? In any case, not being able to find the cash can severely damage family balance sheets and destroy a lifetime’s work. In many cases, an optimal solution is totally tax-free, in-trust permanent life insurance.
Such life insurance planning provides the timely liquidity to help pay estate taxes efficiently, and as such benefits are not subject to estate taxes, provides tax-exclusive-cash to pay the taxing authorities avoiding the stress, fuss and losses suffered by many taxpayers who need to sell or liquidate assets to pay the estate taxes. Properly planned totally tax-free, in-trust permanent life insurance can allow families to make thoughtful decisions, preserve the other assets on the family’s balance sheet and remain wealthy.
A properly structured portfolio of life insurance including totally tax-free in-trust permanent life insurance should be considered in many estate plans. The uniqueness and elegant simplicity of permanent life insurance with irrevocable trust planning is compelling, and Kelleher + Holland, LLC has the capabilities and resources to help.
Andrew Kelleher is a founding member of Kelleher + Holland, LLC, a full-service law firm with 60+ legal professionals in North Barrington. For assistance with estate and tax planning, contact Andy directly at (847) 682-5367.
