Life insurance is a key form of financial protection for many people and families. According to data cited by Forbes, approximately half of American adults are covered by some form of life insurance. In some cases, it may make sense to put a life insurance policy (or multiple policies) within a trust. An irrevocable life insurance trust or “ILIT” is one of the most popular trust options. In this article, our La Jolla, CA, estate planning lawyer explains the most important things you need to know about irrevocable life insurance trusts (ILITs).
Irrevocable Life Insurance Trust (ILIT): Explained
An ILIT is a type of trust that is designed to own a life insurance policy (or policies). The primary purpose of an ILIT is to remove the life insurance policy from the insured's estate—which can thereby reduce estate taxes. That being said, Once the policy is transferred to the trust, the insured can no longer change the terms or beneficiaries of the policy. As the name states, it is irrevocable.
Understanding the Advantages and Disadvantages of an ILIT
An Irrevocable Life Insurance Trust (ILIT) can provide several advantages in estate planning but
also comes with some potential disadvantages. Understanding the pros and cons of an ILIT will
ensure that you are in the best position to determine if it is the right option. Here is an overview:
An ILIT can remove a life insurance policy from the insured's estate, reducing the size of the
estate and the amount of estate taxes owed. It is a huge potential benefit to those who may have
estate tax liability, as the current estate tax exemption is scheduled to sunset after 2024. Once an ILIT is created, the grantor cannot make changes to the trust or the eneficiaries. Additionally, the ILIT carries some notable start-up and administrative costs. They can sometimes outweigh the benefits.
Is ILIT Right for Me and My Estate Plan?
As noted previously, there are both advantages and disadvantages to irrevocable life insurance
trusts. Whether an ILIT is right for you and your estate plan depends on your circumstances and
your goals. If you have a substantial estate and want to minimize estate taxes, an ILIT can be a
useful tool to consider. At the same time, an ILIT is certainly not the right option for every
situation. A California estate planning lawyer with experience handling trust plan issues can help you develop and implement the most effective strategy to protect your assets.
Seek Help From Our La Jolla Estate Planning Attorney Today
At The Law Office of Kris Mukherji, our estate planning lawyer is sophisticated, experienced, and solutions-focused. If you have any specific questions or concerns about irrevocable life
insurance trusts (ILITs), we are here as a legal resource. Call us now or send us a direct message to arrange your fully confidential estate planning consultation. From our La Jolla office, we are well-positioned to represent clients in San Diego and throughout the region.