These clients are in a tough spot. They can pay a higher premium, or walk away from the policy and let it lapse, Saneholtz said. It’s better to prioritize current needs than continue to address past needs, experts agree.
No Protection
In a roundabout way, the current sky-high exemption from federal estate tax ($24.12 million for a couple) is leaving more insurance policies exposed to creditors, observed Las Vegas estate planning attorney Steve Oshins, managing partner of Oshins & Associates LLC.
When the exemption was drastically lower, he explained, wealthy individuals routinely established irrevocable life insurance trusts to reduce estate tax, with protecting the policy from creditors an unsung side benefit of the ILIT.
But today only the ultra-wealthy harbor estate tax concerns, so fewer ILITs are being established. “People are taking ownership of the policy either in their own name or in the name of their revocable trust, and that leaves the policy exposed to their creditors,” Oshins said.
The majority of states shield policy cash value and/or the death benefit from creditors. But in those that provide minimal creditor protection, such as California and Maine, Oshins said, “if the policy isn’t owned by an irrevocable life insurance trust, then the client should consider setting up some form of domestic asset protection trust to own the policy so that a creditor can’t take it.”