Irrevocable life insurance trusts (ILIT’s) are used to: create an estate for heirs using life insurance shield life insurance payouts from estate tax replace assets given to charities or placed in IIOT’s (Irrevocable Income Only Trusts) People often make the mistake of naming their estate as the beneficiary of their life insurance policy. This makes the proceeds of the policy, known as the death benefit, part of the taxable estate. A simple way to avoid estate tax issues is to transfer life insurance policies into an irrevocable life insurance trust. The value of the insurance remains outside your taxable estate, … Continue reading What are an ILIT’s components?
If you own life insurance, it is included in your taxable estate and the proceeds will be taxable for federal estate tax purposes. So, in 2009, an individual is allowed a federal estate tax exemption on their first $3.5 million of assets, including all life insurance policies in their name. (This fact comes as a surprise to many people but this treatment of insurance proceeds dates back almost to the inception of the federal estate tax.) If life insurance policies are owned by a properly structured ILIT, the proceeds will be free of the estate tax. What if I don’t … Continue reading Why would I want my irrevocable trust to own my life insurance?
An irrevocable life insurance trust (ILIT) is an irrevocable trust that is created to own and be the beneficiary of life insurance policies on the trust maker’s life. A reason to use this type of trust is to remove the insurance proceeds from a person’s taxable estate. Remember, that normally when you own a life insurance policy, the proceeds from that policy are included when calculating your taxable estate for tax purposes. Continue reading What is an irrevocable life insurance trust?