What is an irrevocable life insurance trust (ILIT)? An irrevocable life insurance trust, is commonly referred to as an “ILIT” (pronounced eye-lit ). It is a special trust designed to own a life insurance policy with the idea being that if the trust owns the life insurance policy at time of death instead of the insured there will be significant estate tax savings. The main advantage of an ILIT is that you can create an instant estate for a benficiary (the policy's death benefit). Another large advantage is that an ILIT may potentially save estate taxes by keeping the insurance policy and the proceeds of the policy out of your estate. Another large advantage is that your ILIT can...
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Life Insurance Trusts A life insurance trust is a way to provide for eventual estate tax. Here's how it works. You establish an irrevocable (mostly can't change it) trust for the benefit of your children, and contribute money to it. The trustee buys life insurance that is outside your taxable estate. So when you die (sorry), the life insurance pays off in the trust and the trustee has money to help pay your estate taxes. Actually such a trust may hold other assets as well, like securities and family LLC interests. This gets those other assets out of your taxable estate as well, and they can provide income in the trust to help pay the insurance premiums. Insights What is the difference...
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You’ve possibly never heard of trusts, well at least not in the legal sense anyway! But we think you should know about them because they do pretty cool things when it comes to life insurance. Read on to find out more. What are trusts? A trust is basically a legal arrangement which helps people to manage and control their finances. Think about when you die (a horrible thought, but bear with us), you will probably want to pass on some of your assets - like property, savings and investments, to loved ones. You may have a will, in which you’ve specified who should inherit your money, but trusts can come in handy too, especially if you have a life insurance policy which will pay...
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Putting your life insurance in trust could help your loved ones when you’re gone. Less tax and a quicker pay out being just two good reasons. So, should you consider it? You might not want to think about what happens after you’re gone. But what’s certain is you’ll want to help make sure the people you leave behind are looked after, financially speaking. If the worst does happen, your life insurance could pay out a cash lump sum to your loved ones. However, putting - or 'writing' - your life insurance policy in trust means having more control over who benefits from that pay out. It could also help reduce the chance of an inheritance tax bill and it'll speed up how quickly the money's...
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The Balance / Kelly Miller Many people aren't aware that for tax purposes, their estates might include the proceeds from their life insurance policies when they die. Depending on the value of the policy, that could invite an estate tax bill. But it's avoidable. It isn't an ironclad rule, and there are ways around it. What Is an ILIT? An ILIT is a type of living trust that's specifically set up to own a life insurance policy. You can transfer ownership of an existing policy to the ILIT after it's been formed, or the trust can purchase the policy directly. You can't serve as trustee of the trust, however. The trust must be irrevocable, which means that you must "fund...
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Photo: Jose Luis Pelaez Inc / Getty Images What Is an Irrevocable Life Insurance Trust? An ILIT is a legal entity established under state law via a statute or written agreement to own a policy on the life of a grantor, which is typically the person who creates the trust. Crucially, the grantor cannot amend or revoke the ILIT after establishing it. While the grantor is alive, the trust is the beneficiary of and holds the title to the policy. When the grantor dies, the trustee or administrator of the ILIT distributes the policy proceeds according to the terms of the trust. How an Irrevocable Life Insurance Trust Works Life insurance is an important tool that can be purchased to transfer...
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Life insurance is often one of the first investments people consider when they begin estate planning. The right policy can help cover certain expenses for your beneficiaries after you pass. However, choosing the right life insurance policy for you and your family can be a difficult and confusing process. Policies vary widely in their terms. Whether the policy has a guaranteed payment, whether you have access to the value during your life, the length or duration of the policy if there are coverage requirements, and the amount paid to your beneficiaries are all considerations. Irrevocable life insurance trusts—or “ILITs”—have been a popular choice for certain families, especially those who...
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Benefits of writing your life insurance into trust The money is paid out quickly If your life insurance policy is in trust, it won’t have to go through probate (as long as there’s at least one surviving trustee), so your beneficiaries would get the money quickly. This is particularly useful if you dying would leave your family with a financial shortfall straight away – enabling them to pay for whatever’s needed in their circumstances without struggle. This could be the bills, a mortgage, or even your funeral. The payout won’t be subject to inheritance tax Putting life insurance in trust means it won’t be subject to inheritance tax if you die. This is because it won’t be considered part of...
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Volume No. 12-41 “An insurance trust is generally funded outside the estate.” A testamentary insurance trust can be an excellent method of transferring assets to a specific beneficiary on death, without going through the testator’s estate. Because the assets will not be part of the estate, they will not be subject to probate fees or estate administration taxes, or available to the estate’s creditors. As well, because probate documents are filed with the Court, they are public documents, while assets can be transferred via an insurance trust with much more privacy. An insurance trust is generally funded “outside” the estate, with a life insurance policy whose proceeds are...
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For many families, passing on their wealth often raises a number of questions. How can I best provide for my children? How do I leave more to charity? How can I ensure that my spouse and kids do not have to pay estate taxes, probate costs, or outstanding debt? The Irrevocable Life Insurance Trust (ILIT) has been a longstanding tool used for the tax-free transfer of assets. Properly structured, the ILIT can eliminate income, gift, and estate tax on almost unlimited amounts of life insurance death benefits, which helps families ensure that more money is being passed on to the people and causes they care about. How Do ILITs Work? In an irrevocable insurance trust, the trust owns your...
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