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After you die, all of the belongings you owned in your particular person identify on the time of your demise can be listed in your Federal Property Tax Return. If the worth of your property is greater than the property tax threshold for that yr, an property tax can be owed. In 2011, the property tax threshold can be $1 million and the property tax can be a whopping 55 (fifty-five) %. Property taxes should be paid in money inside 9 (9) months of demise. For each greenback you go over the primary million, your property can be taxed 55 cents. 1,000,000 {dollars} might sound like a big sum of money however it’s actually fairly small when you think about that it consists of life insurance coverage proceeds, the worth of your property, shares, financial institution accounts, retirement accounts, jewellery, work, and the rest that you might have had titled in your identify on the time you died.
One method to offering prepared money to pay these taxes and different bills is thru life insurance coverage proceeds. The proceeds could also be paid to the Federal authorities as a substitute of your heirs having to liquidate belongings with the intention to pay the property tax invoice. Life insurance coverage offers an earnings tax free demise profit however the worth of the profit is added to the full of belongings within the property if not structured correctly. This creates a endless cycle of taxes and insurance coverage insurance policies. The best way to keep away from this consequence, restrict or get rid of your property tax, and supply tax free cash to your beneficiaries is to carry the life insurance coverage insurance policies in an Irrevocable Life Insurance coverage Belief, or ILIT.
An ILIT combines the safety a belief with the liquidity of life insurance coverage advantages. Utilizing the $13,000 per yr Gift tax exclusion, you may Gift belongings to the ILIT yearly to cowl the insurance coverage premiums with no tax consequence. At your demise, the proceeds are transferred to your heirs freed from all earnings tax and all property tax. This may present the mandatory liquidity your heirs might want to pay your funeral prices, property taxes, probate charges and settlement prices.
Upon your demise, the trustee of the ILIT will make acceptable distributions of money proceeds to cowl money owed, taxes, and funeral bills. The trustee may even buy some or all your enterprise with the money proceeds and professionally run the enterprise till your children had been sufficiently old to take over. The trustee may additionally make acceptable loans to the partner, children, and enterprise.
An ILIT offers flexibility and tax benefits. For extra info on ILITs and to find out if they’re the best car for you, please contact your South Florida property planning lawyer.
