Alberty: A trust for life insurance

The new estate tax laws have provided a false sense of security for those of us who do not have an estate worth more than $10 million. However, in 2013 we are going to be revisiting the issue of estate taxes all over again as the law sunsets back to the $1 million estate tax exemption. The sunset provision makes the estate tax law an average taxpayer's problem again.

Since life insurance benefits often are the largest asset in an estate, I would like to address the great myth about the taxation of life insurance benefits.

Life insurance benefits are rarely income taxable, but are in most cases includible in one's gross estate. Imagine paying the premiums on a $1 million life insurance policy, but your heirs only receive $500,000 of the benefit at your death.

In my experience as a certified financial planner, the lack of planning for life insurance benefits is the gaping hole that occurs most frequently in clients' estate plans. Never fear because there is a relatively inexpensive estate planning strategy available to protect the benefits paid to your heirs. By not owning your life insurance outright and instead creating an irrevocable life insurance trust (ILIT) as the owner and beneficiary, you can remove the life insurance benefits from your gro

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