Irrevocable Life Insurance Trust - ILIT
Life insurance is becoming a frequently used tool in estate planning. However, the effects of using life insurance as an estate planning tool (irrevocable life insurance trust or ILIT) really aren’t that simple.
There are now dozens of advantages and disadvantages to using life insurance, depending on who owns the policy.
Most people are aware of the fact that if anyone owns a life insurance policy of which they are the insured, the death benefits payable upon their death are includible in their estate for estate tax purposes. Whether the death value will be taxed is dependent on who has been named as the beneficiary of that policy.
If someone has named their spouse as the beneficiary, the unlimited marital deduction prevents the proceeds from being taxed at their death. But, if those proceeds remain in the estate of the spouse, they will be included in the spouse’s estate upon death. The key to taxing life insurance proceeds revolves around ownership of the policy. The irrevocable life insurance trust is a technique that is used to address the issue of ownership.
An irrevocable life insurance trust is just that, irrevocable. When an individual creates such a trust, then the terms of the trust contract cannot be changed. As such, the individual relinquishes all control and capability of management over any assets owned by such a trust. Therefore, the IRS recognizes the fact that under such a scenario, the assets that are included in this type of trust cannot be included in the estate of the individual for estate tax purposes.
When an individual creates an irrevocable life insurance trust to hold the ownership of a life insurance policy, the policy proceeds are removed from the gross estates of both the insured and his/her spouse for estate tax purposes, assuming there is no direct policy transfer by the insured or the insured outlives any such transfer by three years. The insured person's spouse can have an interest in the trust after the insured’s death, as long as the policy is not a survivorship policy and he/she is not given an estate tax sensitive power or interest in the trust.
For decedents who have passed on since 1981, this is the only way to do more than defer the tax and give the spouse any benefit from the proceeds.
The advantages of naming an irrevocable life insurance trust as the beneficiary are as follows:
-- Protection of the beneficiaries against creditors’ and spousal claims
-- Investment management of the process
Avoidance of the generation-skipping transfer tax altogether, if the trust can be arranged to be effectively exempt from the tax by application of the insured’s GST exemption (and that of the spouse) or by relying on the non-taxable gift exception to the GST.
The proceeds can be made available to the executor to pay costs and taxes of the insured’s estate by a loan, purchasing of assets or direct payment.
Each of these techniques has possible disadvantages; the purchase of assets concept makes the most sense; assuming a stepped-up basis for the assets at death.
Another advantage is that an irrevocable life insurance trust solves the problem if the primary beneficiary dies before the insured. It also avoids problems of possible incompetence of the policy owner, the potential frustration of the insured’s plan by the owner during the insured’s life; and the problems of multiple or potentially legally incompetent owners.
Under state law, to name a trust as the policy owner provides creditor protection for the policy during the insured’s life. It also provides creditor and spousal protection for the beneficiaries.
The policy, although beyond the insured’s direct control, is in the hands of the trustee chosen by the insured to carry out the terms of an irrevocable life insurance trust created by the insured. Therefore, this is a fairly comfortable arrangement for most insured people once the decision has been made to give up policy ownership.
OFFSHORE ASSET PROTECTION
- Asset Protection Offshore Liechtenstein
- Asset Protection Tax Summaries Ireland
- Taxation Foreign Corporations
- Asset Protection Tax Summaries Honduras
- Intentionally Defective Grantor Trust
- Asset Protection Caribbean Tax Havens
- Offshore Financial Centers Ireland
- Asset Protection Nsa Spying
- Asset Protection Using Offshore Trusts
- Tax Avoidance Vehicles
- Boats Asset Protection
- Asset Protection Tax Summaries Mexico
- Family Limited Partnerships Tax
- IRS Abusive Trusts
- Panama Region
- Asset Protection Panama Foundations
- Asset Protection Offshore Definition
- Asset Protection Location Of Your Company
- Asset Protection Lawsuit Prevention
- Asset Protection Renunciation
- Private Annuity Ruling Irs
- Assetprotection Trusts
- Asset Protection Tax Summaries Ecuador
- Panama Canal Zone
- Asset Protection Tax Summaries Panama1
- Going Offshore
- Asset Protection Taxing Foreign Stock
- Asset Protection Guernsey Taxes
- Asset Protection Police
- Secret Bank Accounts
- Offshore And Alternative Investments
- Asset Protection Taxing Expats
- IRREVOCABLE LIFE INSURANCE TRUST
- Asset Protection Tax Summaries Nicaragua
- Asset Protection Laundering
- Asset Protection Hong Kong
- Offshore Asset Protection Planning
- Offshore Cayman Islands
- Asset Protection Second Passport
- Poetic Injustice In The Pearl River Delta
- Asset Protection Expatriation
- Asset Protection Scam Trusts
- Dynasty Trust The Basics
- Asset Protection Flat Tax For Puerto Rico
- Panama Comfort Zone
- Asset Protection Tax Summaries Italy
- Bahamas Information
- Asset Protection Faq
- Offhshore Banking Privacy
- Asset Protection Privacy
- Offshore Asset Protection
- Offshore Pensions And Taxes
- Asset Protection Panama
- Asset Protection Tax Summaries France
- Asset Protection Identity Theft
- Probate And Revocable Trusts
- Asset Protection Guernsey
- Nevis Offshore Financial Center
- Isle Of Man No Tax Zone
- TrustMakers Forms Center
- TrustMakers Site Map
Learn more about protecting your assets with these articles:
If you are looking for the most important concepts in Asset Protection, this is where to start! If you need to talk intelligently about protecting your net worth or you are a professional this online training program is for you!
Get our Free Online Asset Protection Video Course.
Learn how to protect yourself like the pros!
Clear, concise and straight forward, this e-Book will help you make sound decisions with your business and personal assets..
This e-course will give you straight forward asset protection advice you can implement now. One of the best asset protection courses available! Includes 70+ video lessons, 3 Ebooks, and 6 example legal documents!
The key to a solid Asset Protection Plan is the Estate Plan. This downloadable e-module will help you sort through the many tax mitigation and estate planning strategies helping you make sure your wishes are carried out. Learn succession planning the right way and protect your wealth for generations to come!