There are several different trusts available to achieve your estate planning goals and help you protect the assets that you plan to leave to your loved ones. One tool that an experienced Hillsborough County estate planning attorney may suggest to safeguard the proceeds of a life insurance policy is called an irrevocable life insurance trust or ILIT. These trusts protect the benefits of your life insurance policies by keeping them separate from your taxable estate.
Experienced estate planning attorneys often recommend ILITs to their clients who own large life insurance policies that, in addition to other assets, may put those clients over the state or federal estate tax thresholds. ILITs also allow policy owners to choose who benefits from the life insurance proceeds and how those benefit payments are distributed.
How Does an Irrevocable Live Insurance Policy Work?
An ILIT is an irrevocable trust, which means it cannot be changed or revoked by the Grantor (the person who makes the trust) and the Grantor must give up all ownership of the Trust assets. Once a life insurance policy is transferred to the ILIT, the Grantor no longer owns the policy and technically has no control over the policy or any beneficiary designations. However, the Grantor sets the terms of the trust, so they control how the life insurance distributions are made and to whom, as well as when those distributions are made to the beneficiaries.
Who Manages the Trust?
The Grantor names a Trustee, usually a spouse or adult child, to oversee the trust and the life insurance policy. Keep in mind that the life insurance policy must be transferred to the ILIT at least three years before the death of the Grantor, otherwise the trust will not be valid.
Who Can Help Me Create This Trust?
An irrevocable life insurance trust is a complex legal tool that requires the knowledge of an experienced estate planning attorney to create. If the trust is created incorrectly, your estate may be responsible for paying estate taxes on your life insurance policies while your wishes for your beneficiaries may not be fulfilled. If you are interested in this type of trust, make sure to work with an attorney who understands the ins and outs of this planning strategy.
How to Get Started
If you are interested in learning more about irrevocable life insurance trusts, or if you’d like an experienced Hillsborough County estate planning attorney to review your existing irrevocable life insurance trust, please contact us at (813) 438-8503 to set up a consultation.