Should the unthinkable happen and a loved one pass away without any advance planning, their family members could find themselves dealing with avoidable costs and expenses. Life Insurance held in an irrevocable trust can be one tool for helping your family avoid estate taxes and have sources of cash on hand to pay taxes or expenses. WHAT IS AN IRRECOVABLE LIFE INSURANCE TRUST (ILIT)? An ILIT is a type of trust which holds a life insurance policy. When properly structured it removes the life insurance proceed from being taxed while making them available to meet the needs of surviving family members. An ILIT can be used as an important piece of your overall estate plan. In order to work properly, it is critical that your ILIT be properly drafted. You should consult with an Estate Planning Attorney in Phoenix to ensure that your ILIT will meet strict federal guidelines.
HOW DOES IT WORK?
An ILIT works by allowing a trustee, who is not the insured, to manage a life insurance policy. An existing life insurance policy can be transferred into an ILIT, or gifts can be made to the ILIT which allow the trustee to pay insurance premiums. After the insured passes away, the trustee manages the proceeds of the life insurance policy under the terms of the trust.
WHAT ARE THE BENEFITS OF AN IRREVOCABLE LIFE INSURANCE TRUST?
1) The trust is the owner of the insurance policy, which keeps the proceeds of the insurance policy out of the taxable estate.
2) Proceeds from the policy will be available to your beneficiaries’ income-tax free.
3) Proceeds from the policy can be used to pay taxes, legal fees, probate costs, and any other liabilities
4) A life insurance trust can be used to carry out your specific wishes.
An irrevocable life insurance trust gives you maximum control over the hard-earned money that you hand over to insurance policies. Consult with the right Estate Planning Attorney in Phoenix to determine whether an Irrevocable Life Insurance Trust makes sense for you.