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What is an irrevocable life insurance trust?

An irrevocable life insurance trust (ILIT) is a special trust designed to counteract a lot of problems that can arise relating to life insurance. One of those problems relates to a large life insurance policy that triggers unplanned estate tax consequences. Another problem relates to the large quantity of cash that a life insurance payout could involve.

Are your heirs capable of managing this kind of money? An ILIT can address these issues and offer various estate planning benefits.

Reduce the size of your estate

An ILIT will make the total value of your estate smaller because the proceeds associated with your life insurance policy will not be included in the total value of your estate. By reducing the size of your estate in this fashion, you can potentially eliminate federal and state tax liabilities that could be triggered by a large life insurance policy.

Distribute the payout gradually

You might have a family member whom you feel is not yet mature to handle a large life insurance payout. Or, maybe you just feel it's safer for the relative to receive the payout gradually over time -- perhaps if the relative is deeply in debt and you don't want creditors to seize the assets. An ILIT allows you to set a plan for the gradual distribution of your life insurance proceeds rather than have your relatives receive a giant lump sum payment all at once.

Protection from creditors

Maybe you owe a great deal of money to certain creditors. An ILIT will protect the cash of your life insurance policy from being accessed by creditors after you are gone.

Help your beneficiaries on government aid

If a beneficiary of your life insurance policy is currently receiving government aid -- perhaps due to a disability or through medicaid -- a large life insurance payout could cause your relative to be ineligible for those benefits. By preventing your life insurance proceeds in your beneficiary's name, an ILIT could help him or her to continue receiving benefits.

Can your family benefit from an ILIT?

In some cases an ILIT will be appropriate and in other cases it won't be. For example, and ILIT could form an important part of a couple's medicaid planning. The more you know about life insurance, the better capable you'll be of determining how you and your family could potentially benefit from an ILIT.

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Enea, Scanlan & Sirignano, LLP
245 Main Street
White Plains, NY 10601

Phone: 914-269-2367
Toll Free: 800-724-1327
Fax: 914-948-9316
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