Happy Woman with an ILIT

ILIT-Advanced Estate Planning

In today's blog post, I will take a closer look at one of the more “advanced” estate planning tools: the Irrevocable Life Insurance Trust (ILIT). Trusts are financial instruments which allow a person to organize his or her assets and property in a certain way to achieve personal goals. For instance, you may want a plan that provides tax benefits, asset protection, or ensure speedy and efficient distribution of your estate to your heirs at death. A good strategy to consider is an ILIT. 

What is an Irrevocable Life Insurance Trust?

Life Insurance. You immediately think about a whole life or term policy with a premium that you pay every year. A life insurance trusts holds life insurance policies. The grantor is the policyholder. He or she grants the ownership rights of the policy to the trust. Once the grantor passes away, the trustee may quickly and easily distribute the death profits among the trust beneficiaries. A trust document can provide any specific instructions the grantor wishes to include. How does the ILIT fit into a person's estate plan? 

ILIT Tax Benefits

You may benefit from an ILIT as part of your estate plan. Life insurance trusts may help you minimize estate taxes.  With a life insurance policy, the insured designates a beneficiary.  Money from a life insurance policy is taxable. On the other hand, with an ILIT, the grantor gives up ownership of the policy by putting it in the trust. In order to secure tax benefits, the trust needs to be irrevocable. An ILIT is irrevocable. When the insured person dies, the proceeds from the policy will not be subject to estate taxes.  

Owners of large estates utilize life insurance trusts if they're concerned that their estates will not qualify for estate tax exemptions. In this case, ILIT proceeds could be used by the administrator of the estate to pay pending estate taxes as an alternative to liquidating a part of the estate.

ILIT and the SECURE Act

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed in December 2019. The SECURE Act 2019 changes how IRA and qualified plan distributions must be handled when inherited by non-spousal beneficiaries. The SECURE Act will require non-spousal beneficiaries of a qualified plan and IRA assets to distribute balances within ten years of the owner's death. A required distribution will mean higher taxes for some heirs. For example, a thirty-year old could stretch payments and taxes out over 10 years. The SECURE Act now requires a higher distribution with an earlier tax payment. How does an ILIT help you?

An Irrevocable Life Insurance Trust may be the right estate planning tool to meet your needs. The ILIT may counter MRD expense because it is income and estate tax free. An ILIT is an after-tax payout to any age beneficiary. It provides generational asset protection. It is a perfect add-on strategy if you have a  failure to launch child and also protects against a spend-thrift issue.

Your Estate Plan

Different people need different estate plans. Some clients need a Last Will and Testament with powers of attorney. Other clients need senior care and elder law planning. Still, other clients need different types of trusts and advanced estate planning that includes more complex and precise tools to achieve estate planning goals. It all depends on a person's unique circumstances and particular assets.

If you are interested in learning more about irrevocable life insurance trusts or if you're ready to get started on your estate plan, Attorney Sheri Tucker  is here to provide you with exceptional service. Set up an appointment [link to contact page] today for a complimentary 30-minute consultation.