An Irrevocable Life Insurance Trust (ILIT) provides protection for your estate after death. Estate transfer taxes, payable upon your death, may force your heirs to sell part of the estate, something they might not wish to do, for any number of reasons. Creating an irrevocable trust
can protect your assets and heirs from that eventuality.
An irrevocable trust is formed during your lifetime, and a trustee is selected to oversee the trust. The trustee purchases a life insurance policy on you and your spouse. In return, you make annual gift contributions to the trust, equal to the cost of the policy premiums. Upon your
death, the trustee collects the death benefits, and uses the money to purchase a portion of the estate from your heirs. The heirs, in turn, use that money to pay the estate property taxes.
The disadvantage of the irrevocable trust is that for the trust to be considered a separate tax entity, you must surrender all control over the property you give to the trust. You will be unable to modify or revoke the trust, change the trustees, or change the beneficiaries. Also, recent
tax law changes decrease the tax savings significantly, with trusts being taxed in the 39.6% tax bracket on income as low as $7,500/year! The solution is to distribute the trust's income among the beneficiaries, who are, presumably, taxed in a lower bracket.
As with all estate planning agreements, you should consult a tax and an insurance professional to ensure that all arrangements are made properly. You can receive free irrevocable trust information and advice from one of our expert insurance
agents. For more help with setting up an irrevocable trust, please call us toll free at 877-209-7548.
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