An Irrevocable Life Insurance Trust (ILIT) is a special trust that allows for the possible exclusion of life insurance proceeds from the estate tax. Such an irrevocable life insurance trust, by definition, is unchangeable – a key drawback of its establishment. Yet an ILIT’s potential enormous estate tax savings, particularly for those with large life insurance policies and high net worth’s, might make an irrevocable life insurance trust something worth contemplating.
Since the primary purpose of an ILIT is estate tax reduction, consider if and to what extent you will be exposed to the estate tax. The use of an ILIT offers two benefits: First, life insurance owned by an ILIT will remove the value of the insurance proceeds from the insured’s taxable estate; and second, the insurance proceeds can provide immediate cash to pay bills, expenses and taxes.
Although the amount an individual can exclude from the estate tax changes from time to time due to Congressional legislation, surviving spouses who are U.S. citizens receive an unlimited martial deduction. Therefore, no estate tax will be due on any life insurance proceeds paid to the spouse of the person who dies. However, when the surviving spouse passes away, any remaining proceeds will be included in their estate.
You will need to work with an attorney to set up an Irrevocable Life Insurance Trust. As long as you live at least another three years after you transfer a life insurance policy to the ILIT (no minimum longevity is required for policies the trust itself purchases), all of your insurance proceeds will pass outside of your estate, potentially saving your estate a sizeable estate tax.
To make sure you start reducing your estate tax and set up your own ILIT, contact a Nevada Corporate Headquarters representative at 1-800-508-1729 today.