Estate planning is about so much more than a will. There are a variety of legal documents that you can put in place to distribute your property and assets to your heirs in a way that will provide such added benefits as avoiding probate and estate taxes. One such legal tool is the Irrevocable Life Insurance Trust (ILIT). M&A Law Firm is prepared to design a comprehensive estate plan that not only meets your specific needs, but also looks for the best interests of you and your loved ones.
What is an Irrevocable Life Insurance Trust (ILIT)?
When you establish an ILIT, you are essentially creating a trust that will own your life insurance policy for you. Because the trust owns the policy, it is removed from your estate, avoiding the need for it to go through probate and be subject to estate tax. It is irrevocable which means that once the trust is created and you have placed your insurance policy into the trust, you will be unable to take the policy back and put it under your name or otherwise amend the terms of the trust.
When establishing the trust, you choose who will be the trustee in charge of managing and administering the trust and who will be the beneficiaries of the trust. The trust document may also lay out the terms under which your beneficiaries may receive distributions from the trust. Upon your death as the insured, the trustee will invest the proceeds of your life insurance policy and administer the trust for the benefit of the beneficiaries according to the terms you have laid out in the trust.
It is important to note that you may transfer an existing life insurance into an ILIT, or include a new life insurance policy. Just be aware of the 3 year look-back period. If you transfer an existing ILIT and die within 3 years of the transfer, the life insurance policy will be pulled back into your taxable estate.
What are the Benefits of an Irrevocable Life Insurance Trust?
There are several substantial benefits to establishing an ILIT, including:
- Reducing the estate tax burden: The ILIT will fall outside of the probate estate and will, therefore, not be subject to inclusion in the estate tax calculation. This can substantially reduce the amount of the estate tax your heirs will have to pay.
- Reducing the amount of life insurance coverage you need. The fact that your life insurance proceeds will be spared the added, and sometimes substantial, expense of an estate tax means that you may not needed to carry as much life insurance. Some people carry larger life insurance policy coverage to compensate for the fact that it will be subject to an estate tax. This is not the case when an ILIT is successfully employed.
- Protect government benefits your beneficiary may be receiving. Leaving money to a beneficiary who is receiving government aid, such as Medicaid, may endanger the continued receipt of these benefits as they are contingent on the recipient having limited income and means. With an ILIT, you have the ability to leave insurance policy proceeds to such a beneficiary in a way that the money would not be included in the Medicaid calculation and would not jeopardize the receipt of those benefits. Be clear with your estate planning attorney that you want the ILIT designed with this in mind.
Additionally, an ILIT will give you the power to dictate when your beneficiaries will be receiving the proceeds of the life insurance policy. You will also be able to specify how and why your beneficiaries should receive the proceeds. An ILIT will also protect the cash value of your policy from creditors.
Helping You Create a Future for Your Family You Can Depend On
Irrevocable Life Insurance Trusts can protect your legacy for your loved ones. It allows you to provide a higher level of financial security for them that you may not have thought was possible. Discuss your wishes and objectives for your estate plan with M&A Law Firm, P.C. M&A Law will create an estate plan that meets the unique needs of your and your family. We proudly serve Cook County and Skokie, Illinois.