Irrevocable Life Insurance Trust to Avoid Estate Tax on Life Insurance Proceeds

$3,495: Irrevocable Life Insurance Trust – for one ILIT plus $1,000 for a second ILIT for a spouse. The purpose of an ILIT is to remove life insurance proceeds from a person’s estate and avoid federal estate taxes on the proceeds. For example, if you have taxable estate (more than $12,060,000 for a person who dies in 2022 or thereafter) without including your life insurance and you have a $1,000,000 term life insurance policy, the $1,000,000 is included in your estate and the estate tax on the policy will be $400,000. If the policy is owned by an ILIT, it is excluded from your estate and saves your family $400,000.

Pet Trust to Care for Pets After You are Gone

$297: Pet Trust – Yes, it is what you think it is. Arizona law authorizes the creation of a Trust to benefit and provide for animals. An Arizona pet trust allows you to leave money or property (your home for example so your pets can live out their lives in the home in which they lived with you) in trust to be used by a trustee and/or caretaker to care for your pet(s) if something happens to you. You specify who gets the assets remaining in Trust after the last pet dies. We include pet trust provisions in your RLT rather than create a separate stand alone pet trust.

Funding Your Trust

If you have an RLT, it is critically important your assets be transferred / retitled into the trust. This process of transferring assets to your trust is called “funding.” Assets you own outside the trust at your death may have to go through probate, which frustrates one of the important reasons to create a trust. We offer our trust clients two mandatory funding choices:

Funding Method #1: Starting Pitcher / Relief Pitcher

This funding method requires that you will enter into a written funding agreement with KEYTLaw, LLC, after you sign your estate plan documents that provides as follows:

  1. You complete our funding questionnaire in which you answer questions about your assets and describe them to us.
  2. We input your information into our asset funding database and give you a funding status report that lists all of your assets and shows the assets that have been transferred to the trust and the assets that remain outside the trust.
  3. During the three month period after signing your trust, it is your responsibility to transfer all of your assets to your trust. Each time you transfer an asset, you send us a copy of the document that evidences the transfer. We then update your asset funding database and send you an updated funding status report.
  4. After three months, we will be responsible for transferring to your trust any assets that you fail to transfer during the four month period. We will charge you $195/hour for our time for each asset that you fail to transfer.
  5. As we finish transferring the assets, we will send you an undated funding status report.

The goal of this method is to give you a BIG monetary incentive to do all the funding yourself. The incentive is that will save a lot of money if you transfer the assets yourself. This is the preferred method because you will learn how to transfer assets yourself so you will not have to rely on somebody else to do it for you the rest of your life.

Funding Method #2: The Whole Enchilada – We Do It All

This funding method requires that you will enter into a written funding agreement with KEYTLaw, LLC, after you sign your estate plan documents that provides as follows:

  1. You complete our funding questionnaire in which you answer questions about your assets and describe them to us.
  2. We input your information into our asset funding database and give you a funding status report that lists all of your assets and shows the assets that have been transferred to the trust and the assets that remain outside the trust.
  3. We will prepare the documents necessary to transfer all of your assets to the trust and contact third parties as necessary to transfer the assets. From time to time, we will send you an updated funding status report and copies of transfer documents to put in your estate planning binder behind the “Trust Assets” tab.
  4. You pay us $100 per hour to transfer up your assets.

For general information about Arizona estate planning and related issues, see my article entitled “Arizona Estate Planning FAQ.”