Is An Irrevocable Life Insurance Trust Beneficial For You? People purchase life insurance policies to provide financial protection to their spouse and children in case they die. The proceeds are usually not subject to income tax. However, they are included in a decedent's gross estate. This means that most of the policy proceeds can be subject to federal and state estate taxes. For example, if you have a $5,000,000 life insurance policy, your spouse and children will only receive around $3,000,000 once estate taxes are paid. The goal of an irrevocable life insurance trust ("ILIT") is to protect the proceeds of a policy from being taxed. Based in Brevard County, the experienced estate...
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We hear it all the time from Trustees managing ILITs. Your client no longer wants that life insurance policy they took out years ago for estate planning purposes. The original reason for the policy is no longer applicable and now they want to cease paying premiums (and trust fees). Your client is comfortable with surrendering the policy back to the insurance company without understanding all available options, or perhaps you have an agent or financial advisor pressuring you to sign a pile of paperwork to sell the policy via a life settlement (and if you don’t sign them immediately you will lose the offer). Even if you make an informed fiduciary decision and decide to move forward with a...
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Irrevocable Life Insurance Trusts For a married couple who fully utilizes their estate tax exemptions with "Bypass" Trusts, the Federal estate tax effectively "cuts in" on assets in excess of $4,000,000. For single individuals, this "estate tax threshold" is $2,000,000. For estates in excess of these amounts (including life insurance, employee benefits, jointly owned assets, etc.) you should consider removing life insurance proceeds from the estate by using an Irrevocable Life Insurance Trust. GREAT EXPECTATIONS Otto Schmidlap has assets of approximately $2,750,000, primarily consisting of interests in a closely held business and various parcels of raw land. Otto has three children,...
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Estate planners working with clients who have hit the jackpot in Atlantic City or Las Vegas, or have won the lottery, can assist in the formation of an irrevocable life insurance trust (ILIT) to enhance liquidity and pay assigned federal and state estate taxes before the event of their death. The federal Internal Revenue Service (“IRS”) restricts the transfer of lottery future payments, and some state laws also prohibit assignment of cash transfers of winnings without proper estate or gift planning in place. Creation of an ILIT allows for a decedent to protect family members from unexpected gift and estate taxation of winnings, and plan for distribution of any future payment streams...
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What is a life insurance trust? An irrevocable life insurance trust, or ILIT, is a trust set up by a couple with a third party trustee and is meant for the purchase and distribution of life insurance. The ILIT can be used as a shelter for both term and whole life insurance policies and is useful for both old and young couples as a means of removing life insurance from their estate. Irrevocable LIfe Insurance Trust Structure The person who is being insured creates the ILIT and deposits funds into the trust for the use by an independent trustee. The trustee utilizes the trust’s funds to purchase a life insurance policy but names the trustee as the owner and beneficiary of the life...
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One of the things that people come across when they are researching life insurance is the life insurance trust. Although the life insurance trust is fairly simple it can confuse a lot of people because when a life insurance trust is set up it can have a number of repercussions that differ significantly from a regular life insurance policy. Here is what you need to know about this special kind of life insurance. In order to fully appreciate the differences between traditional life insurance and a trust however, you first should know how conventional life insurance works, because until you understand the differences between having a life insurance trust set up and just owning a regular life...
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A life insurance pay out is not normally subject to income or capital gains tax, but it could be liable for inheritance tax at 40%. A trust is a legal arrangement that can help you to sidestep inheritance tax (IHT) on the proceeds of a life insurance policy. Trusts are relatively straightforward, but there are various types and some of the legal jargon can be off-putting. But if you are thinking of setting up a trust, it can help to familiarise yourself with how they work. Settlors, trustees and beneficiaries When setting up your life insurance policy in trust, there are three parties that will be referred to: The settlor: The settlor is the person who currently owns the life insurance...
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Should You Create a Trust? Different types of trusts can fill different types of needs. People often create trusts to help them manage their assets. Here’s a quickie on the basics of a trust, along with a description of common uses. A trust is created by the grantor (that’s you). The grantor writes the rules governing how the trust is to operate, what it is to do, and how and when to do it. If the trust is revocable, you can change the rules at any time. If the trust is irrevocable, you can’t. (Each form has advantages and disadvantages, including tax implications.) When creating the trust, you appoint a trustee, who will have the job of managing the trust and its assets. (People often...
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What is a Washington DC Life Insurance Trust? In general, a trust is a financial entity you create in order to put money or assets aside to be managed, distributed, or invested by the person or entity overseeing the trust, known as the trustee. Individual or asset management companies can be a trustee. A life insurance trust is a trust that allows the trustee to purchase life insurance policies on the grantor, which is the person who established the trust in the first place, or the grantor’s spouse or beneficiaries of the trust. The trust will be the one who owns the applicable life insurance policies and will also be responsible for collecting the benefits when the insured policyholder...
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Death benefits payable from a life insurance policy on the death of the insured can be considerable. Such benefits can either be paid directly to one or more individual beneficiaries or be paid to a trust administered for their benefit. A trust can own and/or be the death beneficiary on a life insurance policy. Unlike retirement plans, there is no income tax disadvantage to naming a trust as the death beneficiary of a life insurance policy. Moreover, for very high net worth persons, having an irrevocable life insurance trust purchase and own the life insurance policy is a way to keep a considerable asset outside of their estate and so minimize federal estate taxes. Nowadays, however, with...
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