If you do not carefully plan for your Texas estate, your beneficiaries will have to pay high taxes on your life insurance policy. However, an irrevocable life insurance trust allows you to place your policy into a trust that pays out the policy to your beneficiaries while minimizing estate and gift taxes. Consider these choices when choosing an irrevocable life insurance trust for your estate plan.
Consider the definition of irrevocable
After you form an irrevocable trust, you cannot alter it. Neither the amount of the life insurance policy nor the beneficiaries can change. This protects your heirs, but if you undergo any life change that would alter your estate planning, you cannot change the terms of your irrevocable life insurance trust.
Prevent estate taxes
With a typical life insurance policy, the probate court will factor the benefits into your gross estate total. But if you choose to create an irrevocable life insurance trust, those benefits do not fall under the gross estate total. This allows your beneficiaries to skip paying both Texas state and U.S. estate taxes.
Avoid probate court
The ability to avoid probate court factors into many people’s decision to choose an irrevocable life insurance trust. The benefits of avoiding probate court include the following:
- Your beneficiaries receive their benefits more quickly.
- Probate court typically costs up to seven percent of the real estate’s value.
- Your loved ones will not have to deal with the trauma of court on top of their grief.
- Probate court proceedings allow the public open access, while your trust may preserve privacy.
- Anyone who contests your policy outside of probate court faces reduced levels of success.
A good life insurance policy provides economic security for your beneficiaries. With an irrevocable life insurance trust, you can ensure your wishes for them do not face interference or delay.