General Concepts of Estate Planning with Life Insurance

There is a misconception among many people that life insurance proceeds are not included for calculation of federal estate tax. If a life insurance policy is community property, one half (1/2) of the proceeds will usually be included in the estate of the insured spouse. This will be the case even where the proceeds are payable to a named beneficiary other than the estate if the decedent owned the policy or possessed any" incidents of ownership" in the policy.

An incident of ownership can result in a number of ways and would cause the proceeds to be subject to estate tax. For example, the mere right to change policy beneficiaries is an incident of ownership which causes inclusion. The ability to borrow against the policy is also an incident of ownership causing inclusion.


If the non-insured spouse dies first, up to one-half of the proceeds could also be included in the estate of the non-insured spouse. This is usually not the case as the value of the policy at the time of death of the non-insured spouse is substantially lower.

Proper planning by your life insurance professional and your attorney can usually result in life insurance proceeds not being included in the taxable estate. This is usually accomplished through the creation of an Irrevocable Life Insurance Trust "ILIT). Placing the policy in a life insurance trust can result in exclusion of the proceeds from the taxable estate and result in a very substantial tax savings. Although this is a recognized and effective planning tool, proper structuring and observance of details is a necessity, otherwise the goal of exclusion may not be accomplished. Your beneficiary designation should be checked to assure that a beneficiary, other that your estate, has been named.

For more information or to set up a life insureance trust or for other estate planning needs, please  contact us.  See additional comments concerning estate and income tax consequences as well as planning with life insurance trusts in the Louisiana Estate Law Forum Section under Estate Planning. Unlike years ago, most Louisiana Estate Planning, including Last Wills, Irrevocable Trusts and Living Trusts can be handled statewide.  No longer is there a necessity that a local lawyer draft your estate plan in today's technological society.  Your planning documents can be drafted, emailed to you and signed at your location while maintianing the privacy you come to expect.  No longer do you need to divulge financial information to a local attorney that you are uncomfortable with or that has little experience in this area of the law.  You do not want a personal injury lawyer drafting your estate planning documents any more than you want an internal medicine physician performing your surgery! 

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