As a companion piece to our blogs on living trusts, let’s focus on what is known in the estate planning world as the ILIT: the irrevocable life insurance trust.

Life insurance is something that many people have, but what most people know about life insurance amounts, so to speak, to something like this: that the proceeds go to beneficiaries when the policy owner dies, and that the proceeds from life insurance are not taxable. Unfortunately, that is not always the case, as we attorneys like to say. And that’s because if the life insurance policy owner/decedent’s estate is probated, the life insurance policy/value is considered part of the estate’s total value. And that may result in the beneficiaries or the estate itself being taxed on this income, subject to relevant state and/or federal laws.

What an ILIT (also known as a wealth preservation trust) does, in effect, is to separate a person’s life insurance policy from the rest of his/her estate. As with other trusts, an ILIT is not subject to probate, and what any beneficiaries receive from the trust is not subject to income taxes. How is an ILIT structured? It is entirely separate from other trusts in an estate, such as charitable remainder trusts or living trusts. The ILIT itself is the owner of the life insurance policy, not the person whose name is on the policy. The ILIT pays the life insurance premiums as well. And because it is an irrevocable trust, my readers know that an ILIT may not be altered or changed during the trust creator’s lifetime. Upon the death of the person named on the life insurance policy, the ILIT trustee will assume the management of the trust assets and any disposition of payments to the named beneficiaries.

Sound complex? That’s just a general description. An experienced estate planning attorney with extensive knowledge of trusts is your best resource. If you believe your estate may have a great deal of tax liability, there may well be one or more types of trusts, like living trusts and ILITs, that can help reduce, postpone or eliminate the tax burden on an estate as well as on its beneficiaries.

From complex trusts to simple wills, please call on me for assistance with any estate planning questions or issues you may have. We can work together to create, or update, any existing plan and/or documents you need. Bring me your questions, concerns, and worries. Let’s talk about what you need now, and what your wishes are for the future. To set up a consultation, contact me at 818.956.9200.

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