With good planning, North Carolina residents may be able to deal with life insurance policies in a manner that minimizes estate tax consequences. Proper planning can help in this regard.
People purchase life insurance in order to offer financial protection for their loved ones in case they die unexpectedly. If they leave their benefits to their spouses, the proceeds will pass outside of their estates and without federal taxes. If they leave their proceeds to their children or to a non-spouse beneficiary, the proceeds will in most cases be considered to be part of their estates and subject to tax under certain circumstances.
The federal estate tax exemption amount is currently $5.49 million for unmarried people and $10.98 million for married couples. Although this is a large amount, unmarried people often trigger the estate tax limits by having substantial life insurance policies that make their estate values exceed the threshold. Unmarried people whose life insurance would make their estates larger than the threshold amount can avoid federal estate taxes by establishing irrevocable life insurance trusts that own their policies so that the proceeds are not considered to be a part of their estates.
Avoiding federal estate taxes is important for many people. When the total value of the assets exceeds the federal estate tax exemption amount, families may end up paying substantial amounts to the IRS rather than receiving all of the assets. A good estate planning lawyer may help people to draft estate plans that minimize the amounts of any taxes that their loved ones might otherwise have to pay.