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In the past, New Jersey estate and trust practitioners regularly used irrevocable life insurance trusts, or “ILITs, ” to shield life insurance proceeds from New Jersey’s estate tax. Generally, with a few exceptions, making an ILIT the owner and beneficiary of a life insurance policy removed the death proceeds of the policy from a client’s estate for estate tax purposes. As a result, it was common practice to include ILITs as part of the estate plan for New Jersey clients that owned their home, had modest savings and a life insurance policy with a death benefit that placed the client above the $675,000 New Jersey estate tax exemption in place from Dec. 31, 2001, to Jan. 1, 2017 (in 2017 the New Jersey estate tax exemption increased to $2 million). In 2018, New Jersey repealed the New Jersey estate tax and the federal estate tax exemption is over $11 million per person today. As a result, many trust and estate attorneys have found less need for ILITs. However, despite the repeal of the New Jersey estate tax and the high federal exemption level, there are still circumstances where practitioners may want to consider the use of ILITs.

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