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Understanding the benefits of an irrevocable trust

People in St. Paul who are concerned about the future of their loved ones after they themselves are gone can take steps to protect their loved ones. When considering how they should move forward with estate planning, certain issues such as life insurance and asset protection come to the forefront. There are many positives aspects to the various forms of financial protections that can be implemented, and it may be beneficial to become more familiar with them.

For a beneficiary, there are great benefits to a life insurance policy. In general, life insurance is not subject to income tax. That doesn't automatically mean that the beneficiary will not be taxed. Instead, it depends on how much value is in the estate as a whole. If the estate's value is over a certain amount, taxes may be levied. The current amount exempted from taxation is $5.34 million, but there has been talk of that number reducing in years to come. A strategy to avoid being taxed is an irrevocable life insurance trust. With this type of irrevocable trust, the trust itself is named as the policy's beneficiary. Thus, when the insured person passes on, the trustee receives the policy's payout. The representative for the estate will then pay for the costs associated with settling the estate, thereby avoiding federal taxes.

Many people shun planning for the future because it can be unpleasant to think about. However, when looked at in a different light, it can be more unpleasant to think of loved ones left behind who will lose a vast portion of the estate that the deceased person worked so hard to build. Planning correctly can prevent family members from fighting over the estate, will protect the assets, and avoid tax payments that are excessive. Having a well-organized plan with life insurance is almost always a good idea.

People who are concerned about how their estate will be handled after their death and don't want to see a chunk of their fortune taken by the government should consider speaking with an estate planning attorney. With strong legal advice, an individual can rest assured that his or her estate is in good hands and that, when the time comes, all will go according to plan.

Source: Des Moines Register, "Benefits of an irrevocable life insurance trust," Jim Sandager, May 24, 2014

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