Estate planning refers to the process of making arrangements for the management of your estate after your death. There are many ways to go about estate planning, and one tool that estate planners often use is the irrevocable life insurance trust, or ILIT.
What is an irrevocable life insurance trust?
An ILIT is an irrevocable trust that owns a life insurance policy on the life of the grantor. The grantor is the person who creates the trust and transfers ownership of the policy to the trust. In estate planning, the trustee is the person who manages the trust and is responsible for carrying out the terms of the trust. The beneficiaries are the people who will receive the benefits of the trust.
The advantages of an irrevocable life insurance trust
One advantage is that it can help you avoid probate, which is the legal process of distributing a person’s estate after their death. Probate can be a long and expensive process, so avoiding it can save your estate time and money.
Another advantage of an irrevocable life insurance trust is that it can help you minimize estate taxes. When you die, your estate may be subject to estate taxes. If your estate is large enough, the estate tax rate can be quite high. An ILIT can help you reduce the size of your estate and minimize the estate tax liability.
Another advantage of an ILIT is that it can provide for your loved ones after your death. The death benefit from a life insurance policy can be used to help your family pay off debts, cover expenses or simply provide them with financial security.
How do you set up an irrevocable life insurance trust?
The first step is to choose a trustee. The trustee can be a family member, friend, lawyer or financial institution. The trustee will be responsible for managing the trust and carrying out the terms of the trust.
The next step is to transfer ownership of the life insurance policy to the trust. This can be done by changing the owner of the policy from yourself to the trust. The final step is to name the beneficiaries of the trust. The beneficiaries can be your spouse, children or other loved ones.
Once you have set up an ILIT, it is important to keep track of the policy and make sure that the trustee has access to the policy information. You should also review the trust terms periodically to make sure they are still meeting your needs.