IRREVOCABLE LIFE INSURANCE TRUST (ILIT)
By Chuck Davis, CLU, ChFC
What is an ILIT? It is a tool that owns your life insurance. It is designed to avoid income and estate taxes, and manage and protect trust assets. The major attribute of setting up an ILIT is that the trust assets can be managed after you die. Your document must be created correctly.
Could this be the Swiss Army Knife of your financial portfolio? Let’s explore it. It is a holding device primarily for life insurance. Life insurance is among the most common financial products owned in America. It is a valuable source of funds designed to provide tax free money for a multitude of needs. Perhaps there is a better way to own life insurance than we normally do.
Enter the ILIT. It is like other trusts in that it owns assets. An ILIT owns your life insurance. Irrevocable means that once you have created it and placed an insurance policy inside it, you cannot take the policy back in your own name. This is where the value comes in. Irrevocable means it is out of your estate, yet, you can closely control many other aspects of the ILIT and control the disposition of trust proceeds.
Let’s take a look at how we can take advantage of this tool. You can choose your trustee (or trustees) who will manage your ILIT. Can we think ‘friendly’ trustees here? You can dictate who your beneficiaries will be and define the terms under which they will receive benefits. You can eliminate the life insurance from your taxable estate with proper structure. Note here that the estate tax exemption is over $5,000,000, so many of us don’t have an estate tax problem anyway.
Let’s explore some benefits. You choose the trustees and you can use the ones that have your interest at heart. What do you think each heir will do with their inheritance? Will they spend it their way or your way? With the ILIT, your design is in charge of the trust. The trust can pay all of the proceeds of the insurance immediately to one or all beneficiaries. You can specify that beneficiaries can obtain the funds when they reach certain milestones. You can also add incentives to your plan. For example, when the beneficiary reaches a certain age, graduates from school, has a child, gets off drugs, starts college, and etc. You build this around what is important to you and your recipients and when you think they need the funds. A trust can be designed to enhance the ability to receive government aid legally.
Your policy will not be subject to probate which eliminates legal expenses. The proceeds are paid income tax free. This is huge! The cash value is protected in most states and this is enormous. Imagine, piling up large chunks of cash inside a life insurance policy and it resides within an ILIT. I call it an ‘impenetrable steel vault’ that only your trustees have the key to and they are ‘friendly’ to you. This is the Swiss Army Knife of the financial service industry.
Do your homework and determine if the ILIT is for you. Good luck.
Could this be the Swiss Army Knife of your financial portfolio? Let’s explore it. It is a holding device primarily for life insurance. Life insurance is among the most common financial products owned in America. It is a valuable source of funds designed to provide tax free money for a multitude of needs. Perhaps there is a better way to own life insurance than we normally do.
Enter the ILIT. It is like other trusts in that it owns assets. An ILIT owns your life insurance. Irrevocable means that once you have created it and placed an insurance policy inside it, you cannot take the policy back in your own name. This is where the value comes in. Irrevocable means it is out of your estate, yet, you can closely control many other aspects of the ILIT and control the disposition of trust proceeds.
Let’s take a look at how we can take advantage of this tool. You can choose your trustee (or trustees) who will manage your ILIT. Can we think ‘friendly’ trustees here? You can dictate who your beneficiaries will be and define the terms under which they will receive benefits. You can eliminate the life insurance from your taxable estate with proper structure. Note here that the estate tax exemption is over $5,000,000, so many of us don’t have an estate tax problem anyway.
Let’s explore some benefits. You choose the trustees and you can use the ones that have your interest at heart. What do you think each heir will do with their inheritance? Will they spend it their way or your way? With the ILIT, your design is in charge of the trust. The trust can pay all of the proceeds of the insurance immediately to one or all beneficiaries. You can specify that beneficiaries can obtain the funds when they reach certain milestones. You can also add incentives to your plan. For example, when the beneficiary reaches a certain age, graduates from school, has a child, gets off drugs, starts college, and etc. You build this around what is important to you and your recipients and when you think they need the funds. A trust can be designed to enhance the ability to receive government aid legally.
Your policy will not be subject to probate which eliminates legal expenses. The proceeds are paid income tax free. This is huge! The cash value is protected in most states and this is enormous. Imagine, piling up large chunks of cash inside a life insurance policy and it resides within an ILIT. I call it an ‘impenetrable steel vault’ that only your trustees have the key to and they are ‘friendly’ to you. This is the Swiss Army Knife of the financial service industry.
Do your homework and determine if the ILIT is for you. Good luck.
Chuck Davis, CLU, ChFC, is the Managing Principal of Main Street Financial, Inc. Our mission is to assist businesses with building financial sustainable financial security. Our process provides guidance, advice, and solutions for the private business owner and individuals.
chuckbpw@gmail.com, www.mainstreetfinancialinc.com, 843.830.0555
chuckbpw@gmail.com, www.mainstreetfinancialinc.com, 843.830.0555