What to Know About Life Insurance Trusts
An irrevocable life insurance trust (ILIT) is a vehicle through which you can facilitate ownership of one or more life insurance policies. The main purpose of an ILIT is to reduce or eliminate estate taxes. The ILIT is both the owner and the beneficiary of the life insurance policy which typically insures the life of the person creating the ILIT, also known as the grantor. Because the trust is irrevocable, you give up any right to make changes to the trust or dissolve it.
When you pass away, there is a possibility your estate will include proceeds from your life insurance policies as part of the estate. If you will owe federal estate taxes or are close to the threshold, creating an ILIT could be a means for you to lower your federal estate tax burden or avoid the federal estate tax entirely.
If you retained control of the life insurance policy as the owner, you would be able to withdraw the cash value of the policy or change beneficiaries at any point during your life. This control, however, causes the policy proceeds to be includable in your estate.
The insurance policy’s primary beneficiary would be the trust. Death benefits are then transferred into the trust upon your death for the benefit of anyone you’ve named as a beneficiary to the trust. The ILIT describes how those distributions will be made.
For more information about irrevocable life insurance trusts, contact an experienced Tampa estate planning lawyer at BaumannKangas Estate Law.