life insurance policy question in CT

Dec 09, 2013 1 Replies
M

I'm sure somebody has asked the same question millions of times, but somehow I cannot find a clear-cut answer online and/or from advisors. Therefore I am trying to get some opinion from this forum.



I'm living in CT and networth (with or without the policy proceeds) will likely exceed $1M.



My goal is to reduce/avoid tax bill resulting from the policy proceed, should something happen to me, e.g. income tax, inheritance tax, estate tax etc.



I only have one child, so I am happy to appoint him as the beneficial if it helps.



My question is what's the best structure will you suggest? e.g. gift my son and let him buy the policy? set up a trust? ....



Thanks.


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S

Your information is not clear. Are you talking about a life insurance policy on your life, or on someone else's? And if someone else's, is that person still alive?

For now I will assume you mean a policy on your own life.

The rules may (or may not) be different under the laws of your state, but under federal law there should be no trouble at all with either income or estate taxes due to paying the death benefit on your life insurance policy.

Life insurance is generally free from income tax. And as for estate tax, the exemption amount is over $5 million. So as long as life insurance doesn't push your estate into a higher amount, there should be no estate tax either.

Doesn't matter.

If your estate goes over the exemption amount, an irrevocable trust for your life insurance policy can keep the death benefit out of your estate. It's not as simple as just transferring the policy to the trust. So if your estate goes over that amount (double if you are married), you should seek out professional help to set up the trust.

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