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Irrevocable Life Insurance Trust: A Useful Planning Tool

If you are already insurable, an Irrevocable Life Insurance Trust (ILIT) could be a good option especially for those seeking to pass wealth to their beneficiaries while avoiding estate taxes. Life insurance owned by an insured will be included in their taxable estate. For some this is not an issue, but for others it can create a tax burden for their beneficiaries. One could utilize an Irrevocable Life Insurance Trust if they needed life insurance for wealth transfer.

Significant factors about an irrevocable life insurance trust
The one thing you should note prior to making any decisions about an Irrevocable Life Insurance Trust is that the agreement can’t be revoked, changed, modified or even dissolved under any circumstances. However, there are a few extenuating circumstance where the agreement can be modified. This can be accomplished through the following methods:

  • Disposition of property: this happens if all the property owned by trust is sold. i.e., the policy can lapse once the insurer seizes payments of the premiums.
  • Exercising the power of appointment: this is only put into action when the beneficiary needs to alter the agreement in order to benefit the future or current beneficiaries.
  • Trust protector modification: estate plans nowadays utilize a Trust Protector who is appointed by a court, trustee or the beneficiary and acts as a third party to the agreement. They have the power to approve any changes to be made to the agreement.
  • Judicial modification: this is a document written with specific instructions to the beneficiary or trustee to let the conditions and terms to be altered. These changes must comply with the federal law. This is also a viable option in cases where the trust is out of date.

The different types of irrevocable life insurance trusts
There are two types of irrevocable life insurance trusts: Testamentary and Irrevocable. A Testamentary Irrevocable Trust is one that is made after the person has passed away. This means that no living person has the authority to change whatever was already written before the person passed away. An Irrevocable Trust is also known as an Inter Vivos and is funded and created by a living grantor. A good example includes trusts such as a spousal lifetime access trust, a charitable lead trust and a grantor retained annuity trust.

An irrevocable life insurance trust is an avenue to explore for anyone with wealth to transfer to beneficiaries. Advisors and insureds should use a team of professionals to compose the most effective plan.

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