Irrevocable Life Insurance Trust – ILIT

Maximize Your Estate Planning with an Irrevocable Life Insurance Trust (ILIT)

What is an Irrevocable Life Insurance Trust (ILIT)?

An Irrevocable Life Insurance Trust (ILIT) is a legal entity that owns a life insurance policy and holds the proceeds of that policy outside of your taxable estate. By transferring ownership of your life insurance policy to an ILIT, you can protect the proceeds from estate taxes and ensure they are distributed according to your specific wishes.

Why Set Up an ILIT?

Setting up an ILIT can be a strategic move in your estate planning, especially if you want to minimize estate taxes and ensure that life insurance proceeds are used to benefit your loved ones directly. An ILIT can provide liquidity to pay estate taxes, debts, and other expenses, ensuring that your estate is preserved for your heirs.

Benefits of an Irrevocable Life Insurance Trust

1. Estate Tax Reduction

By removing the life insurance policy from your estate, an ILIT helps reduce the taxable value of your estate, potentially saving significant amounts in estate taxes.

2. Asset Protection

Proceeds from the life insurance policy held in an ILIT are protected from creditors, ensuring that the funds are preserved for your beneficiaries.

3. Control Over Distribution

You can specify how and when the proceeds are distributed to your beneficiaries, providing control and preventing potential misuse of the funds.

4. Liquidity for Estate Expenses

The trust can provide necessary funds to cover estate expenses, taxes, and debts, ensuring that other estate assets do not need to be liquidated.

How Does an ILIT Work?

1. Creation: You create the ILIT and select a trustee to manage the trust.
2. Transfer Ownership: Transfer ownership of your life insurance policy to the ILIT. The trust becomes the policy owner and beneficiary.
3. Fund the Trust: Contribute funds to the ILIT to pay the insurance premiums. These contributions are often treated as gifts for tax purposes.
4. Death Benefit: Upon your death, the life insurance proceeds are paid to the ILIT, bypassing your estate and avoiding estate taxes.
5. Distribution: The trustee distributes the proceeds to the beneficiaries according to the terms you set in the trust agreement.

Setting Up an ILIT Correctly

1. Consult an Estate Planning Attorney: Work with an experienced attorney to draft the trust document, ensuring it meets all legal requirements.
2. Choose a Trustee: Select a reliable trustee to manage the trust. This could be a trusted individual or a professional trustee.
3. Transfer Policy Ownership: Formally transfer ownership of your life insurance policy to the ILIT. This step is crucial for removing the policy from your taxable estate.
4. Fund the Trust: Make annual contributions to the trust to cover the life insurance premiums. Be aware of gift tax implications.
5. Review and Update: Regularly review the trust with your attorney to ensure it remains aligned with your estate planning goals and any changes in the law.

Why Choose Vault Estate Planning?

At Vault Estate Planning, we specialize in creating tailored estate plans that include Irrevocable Life Insurance Trusts. Our experienced attorneys provide personalized guidance to ensure your ILIT is set up correctly and effectively, helping you achieve your financial and estate planning goals.

Get Started Today!

Protect your estate and maximize the benefits of your life insurance policy with an ILIT from Vault Estate Planning. Get started today to learn how we can help you secure your legacy.