Mistake #5. Improper Titling of Life Insurance Policies
Most people know that the death benefit of a life insurance is income tax free, but many people don't know that if the life insurance policy is not owned by an irrevocable life insurance trust (ILIT), the death benefit of the policy owned by the deceased insured is included in the deceased's estate, which could potentially drive up total estate value above federal and/or state state guidelines and trigger an estate tax.
Potential negative consequences:
The following negative consequence might be only applicable to certain high net worth individuals, but it's good to know this could happen and therefore plan your future -
If someone with high net worth purchased a life insurance policy with the purpose to pay estate tax when he passes away, but if himself, rather than an irrevocable life insurance trust, as the owner of the life insurance policy, 40% of the life insurance policy's payout will go to Uncle Sam, rather than as planned to pay out his estate tax.