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Estate Taxes on Life Insurance & Life Insurance Trusts (“ILITs”)

October 17, 2014

Filed under: Estate Planning,Estate Taxes,ILIT,ILITs,Irrevocable Life Insurance Trusts,Life Insurance,Life Insurance Policies — Tags: , , — Neel Shah @ 1:18 am

Many Americans may be unaware of what an irrevocable life insurance trust (“ILIT”) is, let alone the benefits it may provide to them.

Typically, life insurance policy proceeds are not subject to income taxation. However, they are included in the calculation of a person’s gross taxable estate. This is where the ILIT comes in. If a person puts their life insurance policy into an ILIT, the proceeds of the policy are kept out of his or her taxable estate. The proceeds will therefore be available to his or her heirs free of income and estate tax.

Additionally, ILITs are a great way to provide cash to help pay for the taxes that will be levied on your estate. Beneficiaries of your ILIT can use some of the proceeds to pay the taxes owed on your estate. By doing this, your actual estate is kept in tact. This strategy is especially beneficial to those whose estate consists largely of illiquid assets such as a business or real estate. Through setting up an ILIT, you can ensure that your family will not have to sell the illiquid assets in your estate in order to satisfy the estate taxes.

Call us at 732-521-9455 or email at info@LawEsq.net to discuss the right way to own your life insurance.

Keys To Selling Your Family Business

March 13, 2014

Filed under: Business Succession Planning,Distribution of Assets,Family Limited Partnerships,Life Insurance Policies — Neel Shah @ 3:33 pm

There are plenty of challenges to running a successful family business. But they can look like a hop, skip and a jump compared to the challenges associated with passing your family business along to your children or other relatives.

English: Pugh's Garden Centre A family-owned b...

(Photo credit: Wikipedia)

Only 33 percent of family owned businesses survive the transition from first generation ownership to the next, according to an article in the Vail Daily.

Why so hard?

In some cases, it is because no one in the family is interested in taking the business over.

But more often it is because there no good succession plan in place.

To come up with a workable succession plan, you must collect the thoughts and opinions of all family members as to who wants to be involved and how. You must know who wants to do what kind of work.

You must also discuss retirement goals for family members, cash flow needs and the goals and needs of the next generation of management.

Key decisions, of course, include who is going to be in control and who will eventually own it.

Your succession plan could be based on setting up a family limited partnership, where you, as the general partner, control day to day decisions, but over time sell off shares to family members. Eventually you give up control to who is ultimately going to run it.

Or you could set up a buy-sell agreement, which allows you to name the buyer — it could be one of your children — and establish a price. Then your child could buy a life insurance policy on you and eventually use the proceeds to buy the business.

But there are many strategies that can be considered. Best to consult an attorney with expertise on business succession and business buying and selling.

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When Considering Life Insurance

October 31, 2013

Filed under: Estate Planning,Irrevocable Life Insurance Trusts,Life Insurance,Life Insurance Policies — Neel Shah @ 9:00 am

Life insurance is a simple concept. A person takes out a policy in order to provide funds to his or her loved ones upon his or her death. However, life insurance can get complicated by the various products that life insurance companies offer. A recent article attempts to assist insurance customers in understanding how to make good decisions concerning their life insurance.

The article first suggests that people consider life insurance as financial plan insurance. The term itself is rather misleading, considering that life insurance cannot bring you back once you have passed on. Rather, life insurance provides for the financial future of your loved ones.

Here is one rule of thumb: when purchasing life insurance, first calculate how much money you believe your family would need to live comfortably without you. Factor in any mortgage or car payments, college tuition for children, and supplemental income. When you have factored in all of these assets, consider how long your family will have these specific needs. Often, a level term policy that expires at the same time that your working career would be over is the best option.

Life insurance replaces your income, so consider how long of a working career you believe you will have. For example, if you plan on retiring at age 65, calculate your income until that date. After which, there is no anticipated income to protect.