I would like to start by saying that I am not an attorney therefore please do not take this as legal advice. With things of this nature it is always wise to do thorough research on your own and contact an attorney to help with the set-up.
By definition an Irrevocable Life Insurance Trust (ILIT) is something you can obtain that will allow your beneficiaries to escape the estate taxes in the event you pass away. Typically a trust is set up for the benefit of the spouse and/or children.
There are advantages and disadvantages to setting up a Life Insurance Trust.
One benefit of setting up a life insurance trust is that you can specify how the proceeds are spent. In my case I have a $250,000 policy with my son as beneficiary (he’s 4 currently) and I want to make sure that the money within my policy will last him at least until he turns 18. Therefore with a life insurance trust I can specify a certain amount of money each year be given for purposes such as education, health care, extra-curriculars, clothing and general living expenses. Without a trust there would be a lump sum that could potentially be run through rather quickly.
A disadvantage with an Irrevocable Life Insurance Trust is there is no owner which means that once a policy is placed within the trust you will not have the power to change or cancel the life insurance policy that has been placed within it. Also, if you already have an existing policy and choose to now place it within a trust there is a 3 year period that needs to be taken into account. By a 3 year period I mean that if the insured dies within the first 3 years after the policy is transferred into the trust it can be included within estate taxes. If you don’t currently hold a policy and you set up a trust there is no transfer so there wouldn’t be a 3 year period to be concerned about. Another issue with a trust is that because you cannot make changes to it once it’s in place you are unable to add additional beneficiaries if they come about in the future. As an example: I have my only son listed as beneficiary, if I were to put my policy in a trust and had more children I would be unable to add them to it.
As I mentioned earlier I am not an attorney, the information above is what I’ve found by doing my own online research and is only intended for informational purposes.
Author: Christine Wandt, Internet Marketing Specialist
Tags: ILIT, irrevocable life insurance trust, life insurance trust
May 4, 2009 at 1:08 am |
Hi, interesting post. I have been pondering this issue,so thanks for sharing. I will certainly be subscribing to your posts.
May 4, 2009 at 4:06 pm |
Thanks for the comment. Checked out your blog and congratulations to you