King discussed two types of trusts: a spousal lifetime access trust (SLAT), which provides income to a surviving spouse and a remainder benefit to heirs, usually children, and an irrevocable life insurance trust, which purchases a life insurance policy to create its income and remainder benefits.
Get More Life Insurance Coverage To Cover Estate Tax Increases
A change to the rules on the step-up in cost basis for inherited assets would have a ripple effect for all income levels, said King. While such a change has not been included in recent versions of congressional spending and tax plans, life insurance is a reliable method for passing assets tax-free to beneficiaries and funding a household’s expenses after the death of one or more of its members.
“For those who didn’t buy insurance in the past 10 years, they need to be thinking about the loss of the gift and estate tax exemption,” King said. “They want to think about if they want to fund a trust with that exemption and have that trust buy life insurance. Mixed-use trusts are more attractive; as the exemption goes down, they have more impact on taxes.”