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An Irrevocable Life Insurance Trust (an “ILIT”) can be a great tool to include in your estate plan. All assets that a client owns, including their life insurance, is included in the value of their taxable estate. However, with an ILIT, the ILIT itself holds the ownership of the policy. Because the trust is irrevocable, the value of the policy is not included in the client’s taxable estate. There are different methods of achieving ILIT ownership pf the policy (e.g. having trustee initially apply for policy, gifting existing policy, sale of policy, etc).
An ILIT can serve many purposes, including:
- Removal of life insurance death benefits from a taxable estate,
- Asset protection,
- Providing for minor children, and
- Equalizing estates between married persons to utilize both estate tax exclusion amounts.
Designing, implementing and maintaining an ILIT is far more than an exercise in word processing. The entire success of the ILIT is dependent upon a clear understanding of the mechanics and nuances surrounding the strategy by both the planning partners and the clients. There are many pitfalls to not properly maintaining an ILIT, and it is imperative you speak with an experienced estate planning attorney for proper setup and maintenance. Please feel free to watch InSight Law’s Webinar 101 Video to gain a better understanding of what an ILIT is, what it can do for your estate plan, and learn about InSight Law’s ILIT Maintenance Program.