Some New York residents may have a life insurance policy included in their estate plans to set aside money for tax purposes or to protect it from creditors. But The Wall Street Journal reported these variable insurance policies (some of which invested in mutual funds) may be in danger of failing due to a series of adverse effects caused by the upset in the market in 2008.
Let's say an individual has paid $2 million into a policy over a couple of years but has unexpectedly learned he or she will be left with no benefits upon death and could ultimately lose the full cash value of their life insurance. The insurance company would then notify him or her that more money is required to keep the policy alive but that it must be provided within 30 to 60 days, which isn't much time.
However, New York locals can consider investing their wealth in another type of insurance plan known as the irrevocable life insurance trust (ILIT), which many often use in estate planning.
In an ILIT, the trustee can be an individual, like a family member or estate planning attorney, or a trust company. The trustee may just collect checks from the person who created the trust and simply pay the insurance premiums, which are typically received as gifts for a trust and held separately from the estate. The tax-free proceeds may then later be used to pay for estate taxes.
Pinnacle Financial Group chief executive Michael Mingolelli Jr. encourages policy holders to review their life insurance policies every year to catch any problems that could lead to a potential financial disaster. If you have concerns or questions about your life insurance policy or estate plan, seek legal counsel from an estate planning attorney who can find a legal remedy that best suits your needs.