There is a veritable alphabet soup of acronyms to contend with when you are trying to find out information about estate planning. One of these is the ILIT or irrevocable life insurance trust. These vehicles can provide people with tax savings and we would like to offer a brief explanation of ILITs here.
It is important to understand the fact that the federal estate tax can be imposed on life insurance proceeds if the policy is owned by the deceased. In an effort to avoid this, you could place insurance policies into an irrevocable life insurance trust. When the funds are placed into the trust after your death this transfer is not subject to the estate tax.
When you are creating the trust you name a trustee and you also name your beneficiaries. You cannot act as the trustee but your child could. A common course of action would be to name your spouse as the primary beneficiary of the trust and your children as the secondary beneficiaries.
Your spouse can benefit from the resources that have been placed in the trust via the life insurance proceeds throughout his or her life. However, these resources are not a part of his or her estate. So when your spouse dies, the secondary beneficiaries assume ownership of the assets and this transfer is not subject to the estate tax either.
If you are interested in exploring tax efficiency avenues such as the creation of an ILIT, simply take a moment to arrange for a consultation with an experienced and savvy Indianapolis estate planning attorney.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.