An Irrevocable Life Insurance Trust (ILIT) is an important tool used to help manage your estate. Although they are generally beneficial, we have more information to help you determine if an ILIT is a suitable fit for you.
What Is An ILIT?
An ILIT is created during the lifetime of the owner. It owns a life insurance policy on the grantor either through a previous policy that is transferred to the trust, or is bought by the trust using annual funds in the trust for the policy premium. Upon the death of the grantor, any beneficiaries named will receive the proceeds of the trust. An important note to make is that being irrevocable means that any assets given to the trust are no longer owned by the grantor.
What Can I Do With An ILIT?
You may use an ILIT to meet liquidity needs, manage estate taxation, or provide income to those who survive you.
How Does An ILIT Work?
When creating an ILIT, you choose a coverage amount, such as $500,000, and trust provisions determine how that is paid out once you pass away. Remember, since the money passes to your trust, it is not part of your estate, and thus will avoid any estate taxation or attacks from creditors.
You may choose how the trust will release its funds, such as covering funeral costs, debts, medical expenses, etc. After all the payments are made to satisfy liquidity needs, the beneficiaries may receive the inheritance.
FSG Understands How the Pieces Work Together
Creating an ILIT can be very complicated, and may result in the loss of benefits if done incorrectly. We work every day on building comprehensive estate plans that are tailored to our customers’ unique situations. To learn more about ILITS and how one may benefit your estate planning objectives, or to set up an appointment to create one, please contact FSG for a consultation today!