An Irrevocable Life Insurance Trust, or ILIT, is a way to avoid estate taxes by removing life insurance proceeds from your estate. By giving an existing life insurance policy to this Trust or by giving cash to the Trust which is ultimately used to purchase a life insurance policy, you should effectively remove the proceeds of the insurance from your estate according to the IRS.
If you transfer an existing life insurance policy to the Trust, you must outlive the transfer by three years in order for the proceeds to be excluded from your estate. Any new insurance which is purchased by the Trust is not subject to this three year rule.
Once the Trust owns a life insurance policy, the Trust becomes obligated to pay all premiums which come due on the policy. Since the Trust will need funds to pay for the insurance policy, you would make gifts to the Trust each year in the amount of the insurance premiums.
It is important to remember that gifts to the Trust will be irrevocable once made, and you cannot take back a gift once it is made. In addition, all income which accrues to the gifted property will benefit the Trust, not you.
For many, an irrevocable life insurance trust has numerous estate tax benefits and is a great method to transfer wealth to their children.
If you need an Irrevocable Life Insurance Trust lawyer, contact Peterson Law Group.