Many people don’t realize that the life insurance policies that you own at death will likely be included in your estate and potentially subject to estate taxes. Even with a modest estate, this could wind up costing your heirs a good chunk of what you left them. Proper use of an ILIT can help remove assets from your estate, help pay estate costs, and provide your spouse and other loved ones with increased assets.
One powerful use of an ILIT is to benefit a spouse. If your desire is to provide a stream of income to your spouse, while leaving the principle for your beneficiaries, an ILIT could be a wise choice. But remember that an ILIT is irrevocable, meaning its terms are essentially written in stone. Like other estate planning instruments, it is important to talk to an experienced estate planning attorney to determine whether it suits your needs.
How Epiphany Law Can Help
Are you concerned that a large life insurance policy could put your entire estate in jeopardy of increased estate tax? If so, talk to one of the experienced estate planning attorneys at Epiphany Law. Based on your situation and needs, our attorneys can tell you whether an ILIT will accomplish your goals.
Without proper planning, it is too easy to forget that an asset like life insurance can greatly increase your estate size and potential estate tax liability. Our estate planning attorneys can help you avoid the pitfalls so your assets are protected and your loved ones are provided for.
Questions and Answers
Q. Who are the beneficiaries in an ILIT?
A. The trust itself is the primary beneficiary of your life insurance proceeds, Thus, when you die the proceeds from the life insurance policy will be paid to the ILIT and held in trust according to the terms of the trust document. Typical terms would mean that the proceeds would be used for the benefit of a surviving spouse during his or her lifetime, then the balance to children or others.
Q. Can you change the terms of an ILIT?
A. Typically, no. An ILIT is one type of irrevocable trust, meaning that it normally cannot be amended, modified, changed, or revoked. This might seem harsh, but the accompanying benefits can meet the needs of some people and offset the lack of control common with irrevocable trusts. Thus, it is critical that you work with an experienced estate planning attorney.
Q. If it is irrevocable, why would I consider creating and ILIT?
A. If your estate is subject to harsh estate taxes, the stakes are high to minimize those taxes legally and effectively. One manner of lowering the amount of your gross estate (and thus lowering the amount potentially subject to estate taxes), is by creating and ILIT. Provided and ILIT is drafted correctly, it will generally not be a part of your estate or subject to estate taxation.