There are an estimated 1,800 estates that will be subject to federal estate taxes after the passage of the Tax Cuts and Jobs Act. The legislation increased the federal estate tax exemption to $11.2 million and $22.4 million for married couples. North Carolina residents could benefit from reviewing their estate plan in the aftermath of such a change to the tax code. It may be especially beneficial for those who have irrevocable life insurance trusts (ILITs).
These trusts are designed to help avoid estate, capital gains and income tax liability when money is transferred from a grantor to a beneficiary. However, with the increased exemption, this type of trust may no longer be needed. There are certain steps that a grantor can take when the ILIT becomes obsolete. For example, it may be possible to surrender the policy for a predetermined amount of money.
It may also be possible to seek out a life settlement as it could be more valuable than merely surrendering the policy. A trustee may also determine that the premium payments can be borrowed assuming that all beneficiaries are willing to make loans. A policy could also be continued at the current face amount until the cash value runs out. These or other steps must be taken because an irrevocable trust cannot simply be disbanded by the grantor.
Creating irrevocable trusts may be ideal for those who want to protect their assets from creditors or other third-party claims. However, once the terms of the document are set, they generally cannot be changed. People who are interested in this type of estate planning tool might want to discuss their objectives with an attorney.