Should You Create an Irrevocable Life Insurance Trust?
June 25, 2021
If you’re looking for a way to protect your assets in South Carolina, an irrevocable life insurance trust (ILIT) might be the solution you need. With an ILIT, a life insurance policy is the asset in this trust. It is understandable to want help when deciding if an ILIT is right for you. Here’s a closer look at the advantages and disadvantages of an ILIT.
Advantages of An ILIT
An irrevocable life insurance trust can be beneficial if your beneficiaries are young, irresponsible with their money, or both. With an ILIT, you can appoint a trustee who distributes assets according to your final wishes.
Also, by law, no beneficiary has an ownership interest in an ILIT. This situation can be crucial if your beneficiary owes creditors. Since it’s extremely difficult to link assets in an ILIT to a beneficiary, it’s almost impossible for creditors to obtain funds from this trust.
Disadvantages of An ILIT
It’s worth noting that an ILIT is an estate planning tool that’s not for everyone. For one, only beneficiaries can make changes to an ILIT. The grantor can’t rescind, modify, or amend the trust after creating it.
Another potential drawback of ILITs is that they get taxed as part of your beneficiaries’ estates. If your beneficiary can’t pay the taxes on an ILIT, it could create a major financial burden for them.
In conclusion, an irrevocable life insurance trust can be a good decision under certain circumstances. However, it’s important to note that creating an ILIT is something that can get quite complex. Considering that, it’s likely a good idea to contact an estate planning lawyer and learn more about the subject.