If you have an Irrevocable Life Insurance Trust – a popular tool even moderately wealthy families use to shield future life insurance payouts from taxes – it may be important to take action prior to the passage of the “For the 99.5 Percent Act” that is currently in committee at the U.S. Senate.
A little-discussed portion of the legislation, championed by Senator Bernie Sanders, has the potential for disastrous tax consequences should families continue to pay insurance premiums through the trust moving forward.
Tax Implications of the For the 99.5% Act
Under the law as it stands today, many contribute funds to their life insurance trust to pay the annual insurance premiums tax-free.
Should the For the 99.5% Act pass, this option will be modified, meaning families may need to determine a new mechanism to pay the premiums without tax implications.
There could be significant tax repercussions for failing to plan. If the new law is enacted, families could face an estate tax burden on future life insurance payouts if they continue to pay annual insurance premiums from their life insurance trusts.
How to Protect Your Assets
For some, pre-paying future years’ premiums now – in advance of the passage of this act – may be the best option.
Families are encouraged to discuss this situation with their estate planning attorney immediately.