Life Insurance Trusts Are Still Important

I wanted to talk today about life insurance trusts and some of where this is coming from is that I really don't think that life insurance is necessarily out of vogue.

Maybe the the idea of having life insurance has changed from the perspective that, I mean, it used to be, certainly when I first started practicing, that everybody had a life insurance trust and the life insurance in the trust was meant to pay estate tax.

And that can still be true for ultra high net worth families because, you know, they have an estate tax problem regardless of what the exemptions are.

But of course, with the estate tax exemption being $15 million per person, adding up to $30 million for spouses, it's less of a concern.

to find liquidity for estate tax, but you still have liquidity needs in the context of business succession and you still have, uh, income tax considerations because if you don't have an estate tax problem, uh, the income taxes is very, is the material issue.

And the nice thing about life insurance when properly structured is that the, if it's a, if it's a life insurance policy that has, uh, a cash value or has sort of an investment component to it.

Think of your like variable universal life type policies.

Those policies can grow, or the investment component of the policy can grow on an income tax-free basis.

You can withdraw essentially your basis in that policy on a free tax-free basis.

You can take loans from the policy that So long as you pay off before you die, there's no tax.

Oftentimes the loan rates are very low.

So the interest rate is very low.

So you, and then, and then when you die, your beneficiaries receive the death benefit also income tax free.

So, you know, that checks a lot of boxes.

So if you can put some liquidity into a policy and shelter the investments and the income from the investments from continuous taxation, Thus, perhaps overall in somebody's balance sheet, reducing the overall tax hit, it may make sense.

And so it's important to not forget about these things because they'd still do have these really important income tax characteristics to them that can make Insurance policy is very interesting.

And they can, of course, when you die, hopefully you've played this insurance lottery correctly.