Irrevocable Life Insurance Trust
An irrevocable life insurance trust is a useful tool for your estate planning arsenal. Not only does a life insurance trust exclude death benefits from estate taxation, it also keeps life insurance proceeds from undergoing the probate process.
Upon establishment of an irrevocable life insurance trust (ILIT), your life insurance policy is held inside the trust. A contract is used to administer the policy and assigned benefits for designated beneficiaries. Although the life insurance policy cannot be changed once the ILIT is established, the owner retains control over how beneficiaries will receive their benefits.
For example, policy benefits can be paid in full immediately upon verification of death, or schedule distributions can be arranged. Distributions can be paid out monthly, quarterly, bi-annually, or annually. Additionally, distribution payments can be paid when beneficiaries reach milestones such as turning 21, graduating from college, starting their own business, or getting married.
Irrevocable life insurance trusts offer considerable flexibility to policy owners. However, once the ILIT is established, no further changes can be made. Therefore, it is crucial to consider all possible scenarios to ensure funds are beneficially distributed.
ILITs can be beneficial for beneficiaries who receive government assistance. When a person receives aide through programs such as welfare, disability, or social security income restrictions apply. Life insurance proceeds can be controlled so they do not interfere with the beneficiary's government aide.
Irrevocable life insurance trusts offer several tax advantages, including the gift tax exclusion. ILITs allow policyholders to "gift" individual beneficiaries up to $10,000 per year, or married couples up to $20,000. These proceeds are considered gifts when given to the named beneficiaries and are exempt from taxation.
Constructing an irrevocable life insurance trust requires the services of an estate planning lawyer. In addition to naming beneficiaries, policyholders will need to designate someone to administer the trust and determine how insurance proceeds will be distributed.
Published on February 05, 2009 at 02:52 AM
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