Already on ArticleSlash?

Forgot your password? Sign Up

Advantages of Irrevocable Life Insurance Trust

 


Visitors: 958

The primary objective of an irrevocable life insurance trust (ILIT) is to remove the life insurance proceeds from appearing in the insured owner's estate assets. Therefore, when the ILIT testamentary document is drafted, it should be ensured that the insured does not retain or hold any life insurance policies whose mention appears therein. Moreover, the insured should not possess any powers over the ILIT or its trustee that would result in the life insurance policy or the ILIT being included in the insured owner's estate for tax purposes.

The ILIT bestows several other advantages to the estate owner. Some of these are described below.

Minimize the tax consequences of the three-year rule: Under certain circumstances a married grantor of the ILIT can minimize the payment of estate taxes associated with his estate assets. These circumstances include the case in which a married grantor, who has transferred a life insurance policy to the ILIT, dies within three years of the transfer. In such a case, the policy is included in the grantor's estate. Further, the trustee can hold or pay the life insurance proceeds in such a way that qualifies for estate tax marital deduction.

If the marital deduction trust is a general power of appointment under section 2056(b)(5) of the ILIT rules, the following holds true. The surviving spouse can then be granted the right to withdraw the principal amount of the insurance proceeds and use it to make gifts to the deceased estate owner's descendants.

In the same manner a QTIP trustee, who is an independent trustee, could be granted the power to make discretionary distributions of principal to the surviving spouse, who could then also make similar gifts.

Under section 2056(b)(7) of the ILIT rules, however, not even the surviving spouse can be granted a power to appoint the QTIP estate to anyone else except the spouse. In other words, this translates into there being no reference to the QTIP trustee making discretionary distributions so that the surviving spouse can make gifts. This is because such an authority vested in the trustee would run afoul of the aforementioned restriction. The surviving spouse can however, be granted an annual five-by-five withdrawal right over the QTIP trust.

Another advantage of the ILIT is that it essentially reduces the size of your estate income and therefore your overall gross estate tax liability. It may reduce your insurance cover needs so that your estate tax liability is lowered. It will also help protect the cash value of your life insurance policy proceeds from going into the hands of creditors. Another important advantage of an ILIT is that it helps to control exactly when, why, and how your beneficiaries receive the proceeds of your policy in the event of your death.

Lastly, another important advantage of an irrevocable life insurance trust is that it protects the benefits of a beneficiary of the insurance proceeds who is on government aid.

Find out more about estate and tax planning including wills and trusts at => http://www.trusteeofestate.com

(521)

Article Source:


 
Rate this Article: 
 
Advantages of a Universal Life Insurance Policy
Rated 4 / 5
based on 5 votes
ArticleSlash

Related Articles:

ILIT - The Irrevocable Life Insurance Trust

by: Robert Cavanaugh (April 10, 2007) 
(Finance)

Revocable Trust vs Irrevocable Trusts

by: Ken Wilssens (May 23, 2007) 
(Finance)

Revocable Trust (Revocable Living Trust) vs. Irrevocable Trusts

by: Rocco Beatrice (February 08, 2007) 
(Finance)

Asset Protection-Joint Tenancy and Intentionally Defective Irrevocable Grantor ..

by: Rocco Beatrice (February 15, 2007) 
(Finance)

Should I Put My Life Insurance in a Trust?

by: James J. Robinson (July 15, 2008) 
(Insurance/Life Annuities)

Trust Your Life Insurance

by: Jay Tillotson (July 24, 2008) 
(Insurance/Life Annuities)

Advantages of Whole Life Insurance Compared to Term Life Insurance

by: Ricky Lim (October 16, 2008) 
(Insurance/Life Annuities)

Advantages of Whole Life Insurance

by: Vincent Funfatt Yeong (June 21, 2008) 
(Insurance/Life Annuities)

Advantages and Benefits of Whole Life Insurance

by: Julie V Viola (July 14, 2008) 
(Insurance/Life Annuities)

Advantages of a Universal Life Insurance Policy

by: Ed Roberts (August 15, 2008) 
(Insurance/Life Annuities)