The more diverse your estate plan is, the more secure you can be in protecting your money. Your property in Connecticut, however, is subject to taxation. Even when you’re ready to retire, the withdrawals that you make get reduced because of taxes. The same happens if your estate receives life insurance proceeds. Annuities from insurance are taxable if you don’t shelter them. One way to keep your insurance proceeds untaxed is to store them in a trust.
Assessing life insurance proceeds
To determine if you can use a trust to store insurance proceeds, you need to budget your insurance payments. When you, for example, have a surplus of cash, the surplus annuities can be invested. If your estate receives annuities as a surplus, you can even redirect the annuities to your beneficiaries. You just need to deposit your annuities into an irrevocable life insurance trust (ILIT).
Estate planning is when you decide how your beneficiaries will receive the assets of your estate. Beneficiaries are charities, family or friends. The assets of a trust legally exist because of beneficiaries. These can postpone your taxation until they’ve received your assets. Trusts avoid taxation for as long as beneficiaries can’t claim any assets. At a future date, however, once the beneficiary removes a trust’s content, taxation can occur.
Why an ILIT trust makes sense
The ILIT trust makes sense for estates with life insurance proceeds that exceed their financial needs. Without a surplus in annuities, the limits of an irrevocable ILIT are risky. Regardless, no matter how much you deposit, an ILIT trust benefits you with:
- Tax sheltering
- Wealth building
- Financial diversification
- Assets under management
Estate planning in Connecticut
Diversity in how your life insurance is used could result in a stronger financial estate. It takes planning to confirm that an ILIT trust is right for you. Every estate has financial strengths and weaknesses. Once yours are assessed, you can determine for how many years your trust will pay your insurance proceeds to your beneficiaries.