1. A Life Insurance Trust, know as an ILIT.
The following is a transcript of the video above:
Hello folks, Don Rolfe here with Northwest Legal Planning, this is Estate Planning Weekly episode 24. And this week we're talking about ways to pay estate taxes in Oregon without using your own money, or ways to avoid paying estate taxes altogether.
So there's two strategies here that I want to talk about, and by the way, if you have any questions about this topic or any other estate planning topic you can ask them of me live in person, or on the telephone by going to myestateplanmeeting.com.
So, the two strategies that are involved in either replacing the money that your estate is going to pay in estate taxes, or, reducing your estate in such a way as to avoid estate taxes altogether, I'm going to give you two of them.
The first one is by setting up what's called an ILIT, it's an irrevocable life insurance trust. Basically, if you own life insurance in your own personal name that becomes part of your estate when you pass away. So it would be taxable, however, you can set up an ILIT, which is considered a separate entity for tax purposes, and that entity would by an insurance policy on your life that would allow for replacement of the funds that are going to be taken by estate taxes, by the state of Oregon. It's a little complicated but it's a very good strategy for making up that difference. And the way that it's funded, is you make gifts to the beneficiaries, to that trust, those gifts, after they sit there for a certain amount of time and some notices, called crummey notices are given, those gifts are used to pay the life insurance premiums, and once you're gone, life insurance pays out to the trust, trust pays it out to beneficiaries, to replace what was taken in the estate taxes.
The second strategy that I'm going to talk about today, is by reducing your estate below the threshold for estate taxes to get triggered. And there are several ways to do that. Here in Oregon, for an individual, even if you're married, each person in the marriage has the same exclusion amount, one million dollars a piece. So anything over one million dollars in the state of Oregon, when you pass away that's held in your own personal name, is subject to the estate tax. So you have one million dollars and one penny, that one penny is subject to a little bit of estate tax. The way this works, the way this strategy works, is by doing gifting, and that can be either, lifetime gifting, or post death gifting. If it's lifetime gifting, it can be to anyone. It can even be to an irrevocable trust, there are a few types that we can set up,
I won't get into the details, that you can gift a large amount to and take some of your lifetime exclusion amount for a gift and get that out of your estate, and there's some technical details to work out, but that's one strategy.
Another strategy is to do small gifting, as you're going along, you have an annual exemption that you can give to any person. I think right now it's around $15,000, you can gift money out of your estate, and if you're doing it on a consistent basis, depending upon how much over the million dollar exemption you are you can gift your estate down to under that million dollars before you pass away, and your estate won't be subject to the estate tax, and if you're under the annual thresholds or you are making a little bit bigger gifts and filing gift taxes every year, gift tax returns, and claiming some of your lifetime exclusion amount, it can be done in a structured way.
And then for post death gifting, if you gift charitably, or if you bequest things charitably, those can be excluded, under some rules, those can be excluded from your taxable estate, and that could bring your estate tax, or your estate amount down under the estate tax threshold.
So, again, if you have any questions about this or any other estate planning topic, we can chat about it, give me, just go to myestateplanmeeting.com, and I will give you a call, or we meet in person, and we can answer those questions, and also talk about your family, your wishes, desires, and see if estate planning with me is right for you.
So again, the two strategies that I mentioned today are number one, setting up a life insurance trust, an irrevocable life insurance trust, an ILIT, that will replace the funds that are paid for estate tax. And number two is to do some lifetime gifting to individuals, or it can be charities, and if it's charities and you're gifting enough, during your lifetime, you can also use that as a reduction on your personal income taxes, do talk to a CPA about it before doing any of this, or an attorney, and then for post death gifting, is gifting a chunk to a recognized charity, in order to reduce your estate amount that's taxable and to get you under that threshold.
Again, I'm Don Rolfe, this is episode 24 of Estate Planning Weekly, if you have any questions, myestateplanmeeting.com, until next week, take care.