Legal Blog

The Weekly Scenario: Tax ‘Shelters’

Question: In light of the new tax legislation, are there any true tax ‘shelters’ left?

Answer: The short answer is not really. However, one exception is life insurance. If you meet certain requirements, the buildup of cash value in a life insurance policy is exempt from current income tax, while the proceeds payable as a result of death can avoid estate taxes.

In order to exclude the death benefit from your taxable estate, you cannot be the owner of the policy or possess certain aspects of control commonly referred to as ‘incidents of ownership’. Incidents of ownership refers to the ability to control the way a policy is used, including who is named as beneficiary. By retaining these incidents of ownership, the policy owner’s death benefit is included as part of the taxable estate.

There are a number of ways to avoid the inclusion of the policy in the taxable estate. One solution to the problem is to create a life insurance trust. Here the owner of the policy transfers ownership to the trust. While the owner gives up certain rights to the policy, typically, this doesn’t have any material impact on what the owner intends to occur with the death benefit proceeds.

Moreover, many times the trust option allows the owner to design a better conceived plan than what could otherwise be accomplished by simply leaving the proceeds outright to beneficiaries.




As always, if you have any questions or would like to learn more, please contact Steve Shane at or 301.575.0313.


Steve Shane Casual | 301.575.0313

Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.




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