People leaving behind large estates are always searching for good ways to lower the estate tax and FindLaw's New York Estate Planning Blog is often writing about such subjects.
One way to lower your estate tax is through carefully transferring your life insurance policy.
If you transfer your life insurance policy away before your death, the insurance proceeds at your death are someone else's property and will not be included in the total value of your estate.
In general, there are two ways that you can accomplish this goal. First, you can transfer ownership of the policy to another adult, even the named beneficiary. Second, you can create an irrevocable life insurance trust and transfer the policy to the ownership of the trust. Be aware, however, that if you get life insurance through a group plan at work, you may not be able to transfer ownership rights of your policy.
Although it can be easier than setting up a life insurance trust, transferring ownership of your life insurance policy to another adult has its own drawbacks. Perhaps most significant is that once you transfer ownership of the policy, you can't go back and change your mind. You cannot alter your life insurance policy once you have transferred it, either.
You have to be aware of the IRS, though.
The IRS has promulgated a rule that determines who owns a life insurance policy for the purposes of calculating the total value of an estate. Under this rule, if a transfer of a life insurance policy took place within the three years preceding death, then the transfer is void and the proceeds from the life insurance policy are counted into the estate.
The IRS actually has a number of other rules that kick in when transferring a life insurance to lower estate tax. You should speak to an attorney about them.
Related Resources:
- Find a New York Estate Planning attorney (FindLaw)
- Estate and Gift Tax (FindLaw)
- Reducing Estate Tax (FindLaw)
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