As I have written previously, there are many different types of trusts.  Depending upon what you are trying to accomplish, there may be a trust that can help you.  This article is about Irrevocable Life Insurance Trusts, sometimes called, “ILIT’s”.  The purpose of this trust is to preserve large estates from Estate Tax.

New Jersey Estate Tax

New Jersey assesses Estate Tax against estates worth more than $676,000.00.  In this part of New Jersey, Hunterdon County, if you own a home, own some life insurance and have a retirement account, you are probably over the $675,000.00 exemption amount.  If you are married, the first step to preserving the assets from estate tax, is to include a credit shelter trust provision in your Last Will (Click here to learn more about Credit Shelter Trusts).  A credit shelter trust will preserve up to $1,350,000.00 (675,000 x 2) from New Jersey Estate Tax.  But what if your estate exceeds $1,350,000.00?
Robert J. Shanahan, Jr.

Irrevocable Life Insurance Trust

One of the preservation methods is to create an Irrevocable Life Insurance Trust.  Unlike the Credit Shelter Trust in your Last Will, the ILIT is created now, while you are alive.  Generally, you purchase a second-to-die life insurance policy  (payable upon the death of both spouses) or a single life policy (if you are single), in an amount exceeding the likely Estate Tax amount.  This policy is owned by a trust, which is administered by a Trustee (a family member or institution).  You pay the policy premium annually to the trust checking account, and the Trustee pays the premium.  Upon death, the policy is cashed by the Trustee, and it is used to pay the Estate Tax, thus preserving your estate.  It is hoped that the policy premium paid is less than the Estate Tax amount. Any money left after paying the tax can be distributed to your heirs.

There are some administrative responsibilities required by the IRS and an annual tax return is required to be filed.  But, given the tax savings, this work is worth it.

There are other methods of avoiding Estate Tax; this is just one of them.  If you would like to discuss ILITs or other estate planning methods, I would be happy to meet with you.

Robert J. Shanahan, Jr. Esq. focuses his practice in estate planning, elder law and probate matters. Mr. Shanahan additionally practices in business law and non-profit matters. He is a trained, experienced mediator and offers dispute resolution services, particularly for those arising from probate and elder law matters. Additionally, Mr. Shanahan’s firm, Law Offices of Robert J. Shanahan, Jr., LLC, offers a breadth of additional services to families and businesses throughout central New Jersey.

Mr. Shanahan received his Juris Doctor from the Temple University School of Law in 1985, and obtained licensure in New Jersey in the same year.  He received a Bachelor of Arts degree in History in 1981 from William Paterson University, with honors. Robert is a member and Past President of the Hunterdon County Bar Association, and is a member of the New Jersey State Bar Association, and its Elder Law and Disability Section.  He is also active in the National Academy of Elder Law Attorneys. Robert is a member of the Hunterdon Medical Center’s Bio Ethics Committee and was awarded a Five Star Financial Services Professional Award for 2016.

You may contact Bob at (908) 751-1551, or [email protected].