Creating an irrevocable life insurance trust is one way to plan for the passing of your estate and to financially protect your loved ones.
An irrevocable life insurance trust (ILIT) is designed to hold your life insurance policy by transferring ownership of your life insurance policy into the trust. As the grantor, you will place annual funds into your trust, and your trustee (a person you trust to manage your assets) will use these funds to pay your life insurance policy premium. Upon your death, your death benefit is deposited into the trust, and then distributed to the beneficiaries (i.e., spouse, children) named on your policy.
An ILIT can also be used ensure that funds go directly to your children even if you later have a blended family or have a concern of your spouse remarrying after your death and changing your revocable trust’s distribution plan.
Unlike your life insurance policy alone, which directly transfers your death benefit to your beneficiaries in one lump sum, your designated trustee will manage and distribute your death benefit to your beneficiaries as determined by the terms of your trust. Due to the nature of an irrevocable trust, after its creation, your irrevocable life insurance trust cannot be modified or amended.
There are several advantages of placing your life insurance policy into an irrevocable trust:
- You will lock-in and ensure your funds will be received by a specific beneficiary (i.e., spouse, children).
- The assets you place into an irrevocable trust will not contribute to the value of your estate thereby reducing or eliminating your estate taxes. Because these assets exist outside of the estate, your beneficiaries will not be taxed upon receiving their inheritance.
- A trustee is appointed to supervise and distribute the funds according to your wishes.
This will help manage the finances of a beneficiary you may feel has a habit of reckless spending or is incapable of managing their own finances.
To learn if an irrevocable life insurance trust is the right decision for your estate plan, contact Kendal Law Group PC today.