Life Insurance
Explaining what life insurance trusts and creditor protection over funding really is
The main reason for getting insurance trusts is to lower the applicable real estate taxes and get protection from creditors. This is always a major concern for people who have a large life insurance policy, as that tends to pay out to the estate, subsequently increasing its size and thus increasing the estate tax payable. Sometimes, the state gives exceptions to estate taxes up to a certain level, and this gives life insurance policy owner some reprieve, unless their payout value is still large enough, to exceed the given tax break levels. In cases where the specific state levies its own estate and inheritance taxes, the amnesty thresholds are usually lower than the federal government ones. Under such circumstances, you will find out that you are still exposed to these state level taxes, even though you qualify for exemption for the federal taxes. This article explains some of the benefits of life insurance trusts and creditor protection over funding.
Shielding your Life Insurance Trusts with Creditor Protection Over funding
To make sure that the benefits of your policy are separate from your taxable estate, you will need to shield them under life insurance trusts and creditor protection over funding. Anyone who is subject to unlimited liability such as an owner of a corporation or a self-employed person needs to consider safeguarding his or her insurance policy payouts against creditor claims. In response to the present reality, its best to plan by placing your insurance payout benefits as part of your retirement funds, so that they are protected from creditors in a legally recognized way.
Who is at Risk without Life Insurance Trusts Protecting
From the description so far, you may think that only lawyers, doctors and other self-employed people are at risk, but that is far from the truth. Anyone with an asset should protect it, and life insurance is your asset in this case, so you need to prevent both taxes and creditors from eating into your benefits. You may not know when you will file for a divorce or bankruptcy, but you can take measures with life insurance trusts and creditor protection over funding to ensure when such events occur, as well as the maturation of your policy, your funds will remain untouched to serve your wishes.
What Level of Protection do I need for my Life Insurance Trusts?
Now that you know the protection of your assets is paramount, you need also to know how to find the right trust for your needs. The level of protection you receive with life insurance trusts will depend on the identity of the policy owner, the beneficiary and the insured. In most states, the protection will cover the death benefit; the cash surrender value and the loan value that is available to the life insurance policy.
Exemptions apply to the beneficiaries of the insurance trust, so you need to plan carefully on who would be your beneficiaries. This means that, the debtor may still have to pay the creditor using other means, not protected by the trust. In short, by putting the life insurance policy into a trust, you are keeping your hands off and at the same time, you are securing it against any tax or creditor threat. With this arrangement, the law forbids creditors from forcing you to borrow against the assured benefits, and it bars you from exploiting this technique with the sole purpose of defrauding existing creditors.
Having read the workings of life insurance trusts and creditor protection over funding, your next course of action is to short list several providers of insurance trusts in your state, and with the help of an attorney, find the one that best represents your interests.
Learn More About Life Insurance Trusts and Creditor Protection Over Funding
Contact us for more information about our estate planning and life insurance trusts and creditor protection over funding services.
Call WM Schwartz at our Illinois office today for a free quote on setting up your life insurance trust at 847-996-0002