Irrevocable Life Insurance Trust

An irrevocable life insurance trust is a trust that is funded by a life insurance policy, or the proceeds from life insurance. It is used to avoid estate inclusion and also, perhaps, taxes on the estate. If this policy is structured with the proper care, a life insurance trust can help lessen estate tax and gift taxes. Typically, irrevocable life insurance trust is both an owner and beneficiary of the life insurance policy. This kind of trust make it much easier for family and friends to close estates proceeding as quickly and as painlessly as possible and transferring without BIG estate tax bite.

During the lifetime of the insured or policy holder, the donor is the one who creates the irrevocable life insurance trust. This trust has includes a withdrawal provision called Crummy power, which makes it possible for the beneficiaries to take payments that were made to the trust. The donor also names a trustee who is independent. In addition, he or she will make gifts to the trust the payments made on the premium. Finally, report any income on the trust (if there is any) on his or her annual income tax return and file any gift tax return under the generation-skipping transfer tax (GST) tax exemption.

During the insured’s lifetime, the trust will purchase and own the life insurance policy. Trustee will serve Crummey notice, as appropriate, to the beneficiaries, as well as continuing to pay the regularly scheduled policy premiums. Beneficiaries, on the other hand, will not exercise withdrawal rights in accordance with Crummey power.

After the insured dies, the decedent’s estate will be settled, which means: paying off estate taxes and giving the assets that are remaining to beneficiaries. In turn, the trust will receive the death benefit from the life insurance company, and then distribute this proceed according to the trust’s terms to the beneficiaries of the trust (usually your family and loved one). The role of the beneficiary is just to collect life insurance proceed from the irrevocable life insurance trust without having to worry about estate taxes. Although they may seem a little bit complicated, life insurance trusts can give you the peace of mind that your estate will be settled easily and without big tax bill from Uncle Sam.

Dynasty Trust

A Dynasty Trust is a special type of Irrevocable Life Insurance Trust (ILIT) that can preserve and protect estate assets for a long period of time. It helps ensure a legacy for children, grandchildren and future generations.

  • Establishes a long-standing legacy for children, grandchildren and future generations.
  • Shelters the death benefit from estate and generation-skipping transfer (GST) taxes. By allocating some of the GST exemption to gifts to the trust, this strategy keeps assets from estate and gift taxes for future generations.
  • Provides protection for the trust beneficiaries from creditors’ claims and professional investment of the trust assets if a professional trustee is used.
  • Allows an independent trustee (such as a corporate trustee) absolute discretion to make distributions to the beneficiaries.

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