Too Often Overlooked: How Will Heirs Pay the Estate Tax? In Yorktown Heights, NY
Paying estate taxes requires assets that can be easily turned into cash or dipping into cash accounts. This often becomes a major problem for executors of large estates. If proper planning has not taken place, prized possessions may have to be put on the auction block to pay the death tax. There are ways to address this and prevent the need to sell a family heirloom.
Some of the best known estate law stories concern wealthy families, often bold print names, who had to sell their prized heirlooms so that their heirs could pay estate taxes. It is never a happy day when an heir needs to sell the family home, wine collection, fine art or collection of vintage automobiles to raise cash for the estate tax. Proper estate planning for wealthy families should include a rather simple solution to this problem: life insurance.
This was recently explained in the Wills, Trusts & Estates Prof Blog in "How Life Insurance Can Be Used To Help With Estate Taxes."
You can create an irrevocable trust and make it the beneficiary of a life insurance policy.
When the insurance is paid out, the executor of the estate can use the money to pay any estate taxes owed. It is important that the trust be irrevocable in order for the life insurance proceeds to not be included in the estate and also subject to the estate tax.
For this to work the trust must be created at least three years before you pass away. If not, then it will be considered as part of your estate.
Of course, life insurance is not the only way to provide liquid assets that can be used to pay estate taxes. Before rushing to create an irrevocable trust and buying a life insurance policy, talk to an estate planning attorney about your other options.
For more information on Estate Tax, Trusts, Executor, Testator, Death Tax, Life Insurance Planning, Estate Planning, Irrevocable Trust, Beneficiary; please refer to my website