Should I Use An Irrevocable Life Insurance Trust?

 Posted on September 30,2013 in Estate Planning

It's very likely that during a conversation about estate planning that life insurance has come up as a topic. As a tool for planning for your family, life insurance can be a cornerstone of your financial plan, giving your family a sense of security in case something happens to you. When chosen properly and combined with an irrevocable life insurance trust drafted by your attorney, you can ensure that your family will remain safe and protected in the future.

An irrevocable life insurance trust is one way to protect the proceeds from any life insurance policies you own at death being included in your estate. If the policy owner was able to withdraw cash value and alter the beneficiary, then the IRS views this as "incidents of ownership" and state taxing authorities and the IRS can step in to tax proceeds at death.

This specific type of trust is designed entirely for life insurance policies. You can transfer the ownership of the life insurance policies to the Trustee of your ILIT, therefore giving up "incidents of ownership" and protecting the proceeds from your policies from being taxed.

The ILIT will be named as the primary beneficiary on your policies. When you pass away, the proceeds will be deposited into the trust help for your spouse, children, or other beneficiaries. This plan is especially powerful when it allows your family assistance with money to pay the tax bill while keeping your overall estate tax responsibility as low as possible. You can even make use of the generation-skipping transfer tax exemption by allocating the exemption against to discounted dollars (viewed as premium) when you stack these up against the value of the insurance proceeds.

If you are ready to get started with your irrevocable life insurance trust documents, contact an Illinois estate planning lawyer today.