Do you own a large life insurance plan that will ay considerable benefits to your heirs after your passing? If so, consider creating an irrevocable life trust to protect your survivors from having to pay considerable estate taxes in Delaware and to the federal government.
What is an irrevocable life insurance trust, or ILIT?
An irrevocable life insurance trust is one of many estate planning tools you can use to help reduce the amount of estate taxes that your heirs will pay after your passing. Placing your life insurance policy inside a living trust takes ownership away from you so that it is no longer technically yours. High-worth individuals typically use a life insurance trust to reduce taxes paid on the estate. The trust acts as both the owner and the beneficiary.
Setting up an ILIT
Creating an ILIT is similar to setting up other types of trusts. You may want to work with an estate lawyer familiar with the legal and financial benefits of these trusts. You’ll also need to designate a trustee who will administer the trust to your named beneficiaries.
Downsides of ILITs
Unlike revocable trusts, you cannot change the administrator for the beneficiaries after you have created an ILIT, so you must make sure that you wisely choose the people named in the document. Another downside to ILITs is that they are complicated and expensive to create and maintain. However, if your estate is large enough, the ongoing costs associated with an ILIT can offset estate taxes and save money for your heirs.
Remember that an ILIT is just one estate planning tool that you have available. Careful consideration will indicate whether it is the right one for your needs.