What is an Irrevocable Life Insurance Trust (ILIT) and Why You May Need One
An Irrevocable Life Insurance Trust (ILIT) is a type of trust that is specifically designed to hold life insurance policies. The purpose of an ILIT is to help individuals manage the distribution of their life insurance benefits after death.
An ILIT is considered irrevocable, meaning that once it is established, it cannot be amended or revoked. This provides the ILIT with several benefits, including:
Estate Tax Savings
Life insurance benefits are generally included in an individual's taxable estate. By holding the life insurance policy in an ILIT, the benefits can be excluded from the individual's taxable estate, potentially saving thousands of dollars in estate taxes.
Avoiding Probate
Life insurance benefits paid through an ILIT are not subject to probate. This means that the distribution of the benefits can be managed more efficiently and with greater privacy.
Protecting Beneficiaries
An ILIT can provide additional protection for the beneficiaries of the life insurance policy. For example, if the beneficiary is a minor, the ILIT can ensure that the funds are managed responsibly until the beneficiary reaches adulthood.
Estate Planning Flexibility
An ILIT allows individuals to design their estate plan to meet their specific needs and goals. This can include specifying how the benefits should be distributed, and to whom.
To establish an ILIT, an individual must transfer ownership of the life insurance policy to the trust. The individual must also appoint a trustee to manage the trust and distribute the benefits according to the individual's wishes.
Conclusion
In conclusion, an Irrevocable Life Insurance Trust (ILIT) can provide individuals with a flexible and efficient way to manage the distribution of their life insurance benefits. An ILIT can help individuals to save on estate taxes, avoid probate, protect their beneficiaries, and design their estate plan to meet their specific needs and goals. If you have any questions about ILITs, consult with an experienced estate planning attorney.