What is an Irrevocable Life Insurance Trust?
An Irrevocable Life Insurance Trust (ILIT) is a trust that is set up to own a life insurance policy. The trust is irrevocable, meaning that once it is established, the terms cannot be changed. The beneficiaries of the trust are typically the insured person’s family members or other loved ones.
How Can an ILIT Reduce Estate Taxes?
When a person passes away, their estate may be subject to estate taxes. By placing a life insurance policy in an ILIT, the death benefit from the policy can be kept out of the insured person’s estate. This can help reduce the overall value of the estate and potentially lower the estate tax liability.
Benefits of an ILIT in Estate Planning
Some of the benefits of using an ILIT in estate planning include:
– Avoiding estate taxes on the life insurance proceeds
– Providing liquidity to pay estate taxes
– Protecting the life insurance proceeds from creditors
– Ensuring that the life insurance proceeds are distributed according to the insured person’s wishes
Common Questions About ILITs
Some common questions that people may have about ILITs include:
– Can I be the trustee of my own ILIT?
– Can I change the beneficiaries of the ILIT?
– What happens if I no longer want the ILIT?
– How do I set up an ILIT?
Conclusion
In conclusion, an Irrevocable Life Insurance Trust can be a valuable tool in estate planning for those looking to reduce estate taxes and ensure that their loved ones are provided for. It is important to consult with a financial advisor or estate planning attorney to determine if an ILIT is right for your individual situation.
