An Irrevocable Life Insurance Trust (ILIT) is an estate planning tool that moves your life insurance policy into an irrevocable trust. Once the trust is created, the value of the policy is removed from your taxable estate and protected from any possible creditors if purchased in the ILIT or for an existing policy, or is removed three years after the transfer. Because the trust is irrevocable, it cannot be changed or revoked.
ILITs and Estate Taxes
If you have enough assets and are concerned about paying estate taxes, an Irrevocable Life Insurance Trust can ensure there is enough cash to pay for any taxes without your beneficiaries being forced to sell assets (like a family business or farm).
ILITs and Annual Gift Exemptions
ILIT plans are also great tools for utilizing your annual gifting exemption. By creating the trust with specific terms, you can currently gift up to $16,000 to each beneficiary of the ILIT by using that money to pay for premiums on the policy. The annual gift pays for the premiums, further reducing your taxable estate, and is a way of giving to a number of beneficiaries without handing them cash. A husband could create an ILIT, name his wife and their descendants, and gift $16,000 to each of his children and grandchildren, without giving minors a windfall of cash.
ILITs and Inheritance Protection
Like any trusts, ILITs can be drafted with unique terms to fit your family’s needs. While an ILIT is a specific kind of trust, you still dictate who the beneficiaries are and how they receive funds from the Trust. For beneficiaries who may not be great with money, who have special needs, or may be subject to lawsuits or divorce in the future, directing life insurance proceeds to be held in trust for the beneficiary can provide a source of funds for that person when needed, but also protect the assets from being used frivolously or lost.
A properly drafted Irrevocable Life Insurance Trust can be an invaluable resource, but it has to be structured correctly. If you believe you could benefit from an ILIT, make an appointment to speak to an attorney at Grissom Law to see if this is the right plan for you.
Disclaimer
This Blog/Web Site is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide legal advice. By using this blog site you understand that there is no attorney-client relationship between you and Grissom Law, LLC.