How Does an Irreversible Life Insurance Coverage Trust Run?

The avoidance of estate taxes and the typically costly and lengthy procedure referred to as probate, are 2 important objectives of many estate plans. For those who have significant assets that they anticipate leaving to household and loved ones, estate taxes are a prominent factor to consider when estate planning. Although the estate tax rate modifications regularly, it is usually incredibly high– often hovering around half.

One strategy that is frequently used to avoid subjecting possessions to estate taxes, as well as to avoid probate, is the irrevocable life insurance trust, or ILIT.
As implied by the name, an ILIT is a trust that can not be withdrawed, modified or changed when created. The principal function of the trust is to legally own a life insurance coverage policy that will pay to the recipients you called in the trust file upon your death.

An ILIT needs you to designate a trustee to oversee the trust. A trust document is then prepared by your estate planning lawyer and performed by you. As soon as the trust file is signed, the trust becomes a different legal entity. The trust must get a tax identification number and file annual tax returns. You, as the grantor, then offer money to the trust as a present. Make sure not to offer more than the current tax exempt present limitation for the year. That loan is then used by the trustee to acquire a life insurance policy on you. Recipients are called according to the terms of the trust– normally your liked ones or member of the family. Each year, you present additional funds to the ILIT to continue to pay the premiums on the policy. When you pass away, the earnings of the life insurance policy are then paid to the beneficiaries called in the policy.
The advantage to an ILIT is that the life insurance coverage policy is never owned by you. It is not subject to estate taxes. The proceeds of the life insurance policy are generally moved directly to the beneficiaries instead of entering into the probate process. Considering that the policy and proceeds were not owned by you, they are not thought about part of your estate for probate functions. As with a lot of trusts and estate planning tools, there are exceptions, considerations and unique circumstances that need assessment with an estate planning attorney.

For those who have significant properties that they expect leaving to family and liked ones, estate taxes are a prominent factor to consider when estate planning. The estate tax rate modifications on a regular basis, it is generally extremely high– typically hovering around 50 percent. One tactic that is often employed to prevent subjecting possessions to estate taxes, in addition to to prevent probate, is the irrevocable life insurance trust, or ILIT.