Give Plenty of Attention to Your Life Insurance Trust

Are you contemplating using a tool such as an irrevocable life insurance trust? You need the support of an attorney who has helped many other people. Craft these trusts before to ensure that all of the provisions appropriately protect you and are legally valid. 

Simply put, estate plan attention must be given to your irrevocable life insurance trust. If someone has joint trustees listed on an ILIT, one common question brought forward by clients is whether or not the beneficiaries will be able to keep those funds out of the estates of beneficiaries. While this may seem like a cost-effective step to list two of your children on the ILIT before the second death, it is important that everyone understands the requirements of being a trustee and how to appropriately accomplish them. It might also be beneficial to contemplate transferring the trustee powers to a third party, assuming that the beneficiaries intend to access the funds for their own purposes.

If not, the IRS may determine that this is actually a trust fund inside the personal estate of the beneficiaries. A consultation with an estate planning attorney can go a long way towards addressing issues and questions you may have over the duration of the process.

Estate Taxes on Life Insurance & Life Insurance Trusts (“ILITs”)

Many Americans may be unaware of what an irrevocable life insurance trust (“ILIT”) is, let alone the benefits it may provide to them.

Typically, life insurance policy proceeds are not subject to income taxation. However, they are included in the calculation of a person’s gross taxable estate. This is where the ILIT comes in. If a person puts their life insurance policy into an ILIT, the proceeds of the policy are kept out of his or her taxable estate. The proceeds will therefore be available to his or her heirs free of income and estate tax.

Additionally, ILITs are a great way to provide cash to help pay for the taxes that will be levied on your estate. Beneficiaries of your ILIT can use some of the proceeds to pay the taxes owed on your estate. By doing this, your actual estate is kept in tact. This strategy is especially beneficial to those whose estate consists largely of illiquid assets such as a business or real estate. Through setting up an ILIT, you can ensure that your family will not have to sell the illiquid assets in your estate in order to satisfy the estate taxes.

Call us at 732-521-9455 or email at to discuss the right way to own your life insurance.