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What happens to your life insurance policy if it is still in your name the day you die? Most people never ask that question, and the answer can surprise a Forest Hills family that assumed the payout was already protected.
A Named Beneficiary Avoids Probate, Not Estate Tax
A death benefit paid directly to a spouse or child skips Surrogate’s Court, but that is not the same as skipping estate tax. If you personally retain what the law calls incidents of ownership, meaning you can change the beneficiary, borrow against the cash value, or cancel the policy, the Internal Revenue Service (IRS) still treats you as the owner, and the full payout is added back into your taxable estate.
Why Forest Hills, Rego Park, and Kew Gardens Homeowners Should Care
I work with families throughout Forest Hills, Rego Park, and Kew Gardens whose combined home equity, savings, and a sizable policy quietly push them past New York’s estate tax exemption. Cross that threshold and the state’s cliff rule exposes the entire estate to tax, not just the amount over the line, which is a far bigger bill than most families expect.
Removing the Policy From Your Estate
That is why I advise clients in this position to work with an irrevocable life insurance trust attorney to set up a structure where the trust, not the individual, owns the policy. The trust applies for the coverage or receives an existing policy by transfer, and it is named as beneficiary. Because every incident of ownership is permanently given up, the death benefit is removed from the taxable estate.
Timing Matters More Than People Expect
Transferring an existing policy into a new trust triggers a three-year lookback rule, and dying within that window pulls the proceeds right back into the estate. Having the trust apply for new coverage from day one sidesteps this risk entirely, which is why I steer clients toward that route whenever their health allows it.
The families I have guided through this in Forest Hills and the surrounding neighborhoods almost always wish they had started sooner. The planning itself is straightforward once the right trust and trustee are in place.
If your loved one left behind a life insurance policy which needs to be kept out of the taxable estate, contact Roman Aminov today for a free phone consultation.
Contributed by Dan Rose, a local business writer specializing in life insurance and estate tax planning services in New York City.
Roman Aminov Estate Law firm of Queens
147-17 Union Tpke, Kew Gardens Hills, NY 11367, United States
P59P+93 Kew Gardens Hills, Queens, NY, USA
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