Estate planning has certain wealth management aspects to it, including asset protection and wealth planning.
In today’s post, we will discuss one estate planning tool that helps to ensure that your wealth is used in the best possible way to benefit your family.
What tool is that?
The irrevocable life insurance trust, better known as the “ILIT.”
Irrevocable Life Insurance Trust (ILIT)
Here’s the thing: most life insurance policies offer financial protection for your spouse or children in the event of your death, but the proceeds, while generally not subject to income tax, are included in your gross estate when you die. This means, that a significant portion of your life insurance policy proceeds will be subject to federal, and possibly state, estate taxes at the time of your death.
An ILIT (irrevocable life insurance trust) is an estate tool that can keep life insurance policy proceeds from being taxed.
How Does it Work?
An ILIT is a trust that is created by you, the insured, as grantor or trustmaker. The purpose of the trust is to own and control a term or permanent life insurance policy (or policies) during your (the insured’s) lifetime. The trustee of the ILIT manages and controls the assets and pays out the proceeds to the beneficiaries (i.e., your spouse and/or children) at the time of your death.
A properly structured ILIT can avoid having the death benefits paid to the trust included in your estate and pay them to your surviving spouse without having them included in his/her taxable estate.
But there are some important requirements as well as limitations you must know about. First, the trust must be properly administered and it will need its own taxpayer number.
Next, it is important to understand the restrictions of an ILIT, such as (the following list is not all-inclusive):
- You generally cannot amend, rescind, or modify an ILIT.
- You cannot be the trustee of the ILIT.
- Any monies contributed to the ILIT cannot be reclaimed.
- You may not borrow against the value of the policy or change the terms of the trust or the named beneficiaries once it is created.
There are other specific requirements that must be met to create, properly structure and fund an ILIT. Which is why it is critical that you consult with an experienced estate and probate attorney.
Protecting Your Family is Just a Phone Call Away.
Don’t leave planning for your future and that of your loved ones to chance. All it takes is one phone call to the Law Offices of Samantha J. Fitzgerald to ensure that your wishes will be followed, and your loved ones taken care of when you are gone. We expertly guide individuals through the complex probate process, and capably handle all aspects of the creation, administration, and settlement of trusts as well. When you work with the estate planning attorneys at the Law Offices of Samantha J. Fitzgerald, you get more than just an estate plan: you get peace of mind. Call us at 954-580-3690 or email us at: [email protected]tateandprobatelawyer.com today.