Irrevocable Life Insurance Trusts By kyle rolek

18 January 2017 Business ≈ Small Business

Irrevocable life insurance trusts (ILITs) are set up during your lifetime and are often used to avoid probate and shelter life insurance benefits from potential estate taxes.

Posted by Kyle Rolek, CERTIFIED FINANCIAL PLANNER™

President, Rolek Retirement Strategies

 

Irrevocable life insurance trusts (ILITs) are set up during your lifetime and are often used to avoid probate and shelter life insurance benefits from potential estate taxes.

 

Key features of irrevocable life insurance trusts include:

  • The grantor must give up the rights to assets, to revoke or change terms and to change beneficiaries
  • If the trust purchases the life insurance policy, protection from potential estate tax may be immediate
  • If you transfer an existing policy into the trust, the insurance proceeds may be subject to estate taxes if you die within
    3 years of the transfer
  • Assets or insurance policies transferred to the trust may be subject to gift tax
  • Since the trust owns the insurance policy and death benefits are paid to the trust, these assets avoid probate and the claims of creditors

 

Proper estate planning must address the issue of liquidity to
pay expenses.

  • Federal and state estate taxes are due within 9 months
    of death
  • Probate and funeral expenses can cost more than you
    might think

 

Issues to consider include:

  • Cash may not be available when it is needed to pay estate expenses, and remember, after-tax dollars must be used
  • Assets may need to be sold below fair market value to generate cash quickly. This can lead to family disputes over heirlooms or assets that have shared ownership.

 

This content is developed from sources believed to be providing accurate information. The opinions expressed and materials provided are for general information, and should not be considered tax or legal advice.

Kyle Rolek, CFP, President, Rolek Retirement Strategies.

 

Source: The Financial Educators Network

About the Author

The focus of Rolek Retirement Strategies is simple: empower people with the education they need to get to where they want to be. Retirement today is full of challenge and uncertainty. Our educational platform exists to help you prepare to navigate retirement challenges with confidence. 

Article Category