Irrevocable Life Insurance Trust Basics

Estate planning has really end up being an art kind.

Together with deciding who will receive exactly what when you die you must attempt to create a plan that limits or avoids estate taxes and the typically lengthy probate process.

For those with an estate of considerable worth, an irrevocable life insurance coverage trust, or ILIT, is an estate planning tool worthy of factor to consider. An ILIT is a specific kind of trust. As with all trusts, an ILIT, requires you to appoint a trustee, select recipients of the trust and supply financing for the trust.

The specific purpose of an ILIT is to produce a separate legal entity that will buy and preserve a life insurance policy on you. The proceeds of the policy will then be paid to liked ones or relative in case of your death. The reason an ILIT is an appealing estate planning option is that the proceeds of the life insurance policy are typically exempt to estate tax or probate administration.

Although an ILIT provides many advantages to an estate plan, something to take into account is that an ILIT can not be altered once created. Because it is an irreversible trust, you will not be able to modify, change or revoke the trust when you develop it. In addition, although you can frequently move an existing life insurance policy to an ILIT, if you die soon after the transfer the profits may not get away estate taxes. Consult with your estate planning attorney if this is a concern.

For a brand-new policy, an ILIT operates by buying the policy with you as the guaranteed. The beneficiaries are named according to the regards to the trust. As the grantor, you will then need to supply financing to buy the policy, pay the yearly premiums and cover the expenses associated with administering the trust.

According to Probate Attorney Steve Bliss, This is done by gifting money to the trust. When you die, the policy proceeds are then paid to the beneficiaries by the trustee.

The advantages get away estate taxes since you were never ever the legal owner of the policy or the profits. Probate can also be prevented for the very same factor. There are additional guidelines and limitations to an ILIT that must be talked about with your Fayette county estate planning attorney if you are thinking about producing an ILIT.

 

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