What Is An Irrevocable Life Insurance Trust Notes?

August 23, 2021

If you are starting your estate planning process, an ILIT (irrevocable life insurance trust) will provide peace of mind. If you have young beneficiaries or sizeable estate, the trust will be able to provide control over a life insurance policy. The irrevocable aspect of the trust ensures that the creator or the grantor will not be able to change it after it is setup. ILIT is primarily used as an estate planning and financial planning tool to protect assets subject to high estate taxes. What Do You Need to Know About an Irrevocable Life Insurance Trust? A revocable trust enables the grantor to make changes to the trust. You will also be able to end the trust if you want to. An irrevocable trust will not allow any changes to be made after it is setup. Only beneficiaries will be able to change the trust. Revocable trusts are more common as they offer flexibility to the trust creator. An irrevocable life insurance trust is a good idea if you want to save taxes. A grantor will set up the irrevocable trust and fund it. Transfers and gifts are then made to the trust. Transfers and gifts are permanent. Changes not allowed to the trust and its funds after set up. The trustee manages the trust. Distributions made to beneficiaries are also managed by the trustee. The trustee who manages the trust is different from the grantor. Benefits of an Irrevocable Life Insurance Trust Lower Estate Tax Death benefits will not form part of the gross estate when you opt for an irrevocable trust. This means the benefits are not subject to federal and state estate tax. The trust will also be able to cover debts and estate tax costs when the estate makes the purchases. The grantor will not be able to make the purchases as the estate is now part of the trust. It is important to know that even though the estate is exempt from estate taxes, the beneficiary's estate will be subject to such taxes. The tax burden shifts to the beneficiaries. When ILIT is drafted properly, it helps provide liquidity. This will help pay estate taxes and other expenses and debts. It is done through a loan or purchasing assets from the estate of the grantor. Lifetime gifts will help reduce the taxable estate. This is done by transferring assets into an irrevocable life insurance trust.

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