Irrevocable Life Insurance Trust Basics
Estate planning has truly become an art form. Along with deciding who will receive what
when you die, you must attempt to create a plan that limits or avoids estate taxes and the
often lengthy probate process. For those with an estate of considerable value, an
irrevocable life insurance trust, or ILIT, is an estate planning tool worthy of
consideration.
An ILIT is a specific type of trust. As with all trusts, an ILIT, requires you to appoint a
trustee, decide on beneficiaries of the trust and supply funding for the trust. The specific
purpose of an ILIT is to create a separate legal entity that will purchase and maintain a
life insurance policy on you. The proceeds of the policy will then be paid out to loved
ones or family members in the event of your death. The reason an ILIT is an attractive
estate planning option is that the proceeds of the life insurance policy are generally not
subject to estate taxation or probate administration.
Although an ILIT provides numerous advantages to an estate plan, one thing to take into
consideration is that an ILIT cannot be changed once created. Because it is an irrevocable
trust, you will not be able to modify, amend or revoke the trust once you create it. In
addition, although you can often transfer an existing life insurance policy to an ILIT, if
you die soon after the transfer the proceeds may not escape estate taxes. Consult with
your estate planning attorney if this is a concern.
For a new policy, an ILIT operates by purchasing the policy with you as the insured. The
beneficiaries are named according to the terms of the trust. As the grantor, you will then
need to provide funding to purchase the policy, pay the yearly premiums and cover the
costs involved in administering the trust. This is done by gifting money to the trust. When
you die, the policy proceeds are then paid out to the beneficiaries by the trustee. The
benefits escape estate taxes because you were never the legal owner of the policy or the
proceeds. Probate can also be avoided for the same reason. There are additional rules and
restrictions to an ILIT that should be discussed with your Fayette county estate planning
attorney if you are considering creating an ILIT.
Experienced estate planning attorneys Atlanta GA of the Pyke & Associates P.C. offers
estate planning and business planning resources to residents of Atlanta GA. To learn
more about these free resources, please visit http://www.cpyke.com today.