Irrevocable Trusts, “ILIT” – short for Irrevocable Life Insurance Trust – are created to own life insurance policies. The significant advantage of having insurance policies owned inside an ILIT is that the death proceeds are not included in the insured’s taxable estate upon his death. Further, the death proceeds are not taxable in the surviving spouse’s estate, even though she has access to the proceeds to maintain her lifestyle. Upon the death of the surviving spouse, the proceeds pass tax free to the children or beneficiaries of the insured’s choice. Consider this example: Dad and Mom have a taxable estate. They need life insurance in the event Dad prematurely dies. He purchases a $2 million policy. Upon the second death of Dad and Mom, if Dad owns the policy the children may receive only $800,000 because of 40% federal estate taxes. If Dad’s Irrevocable Trust is the owner and beneficiary of the policy, upon his death the proceeds are available for Mom, but yet at Mom’s death if she has not used the funds, pass to the children estate tax free. Sometimes ILIT’S are drafted to own insurance on both spouses so that the insurance pays off at the second death when estate tax is owed. These so-called “second to die policies” or “survivorship policies” are almost always owned by ILIT’S because there is an existing estate tax problem, and you do not want to add to the estate tax problem with the death proceeds. With 2019 federal estate tax exemption amounts of $22.8 million for a married couple, not many taxpayers are concerned with estate tax. But for those exceeding $22.8 million, irrevocable insurance trusts are still a necessity. ILIT’S may again become more relevant if a future President and Congress reduce the estate exemption amount.
I have previously written about the $15,000 annual exclusion, and Irrevocable Life Insurance Trusts (“ILIT’S”). ILIT’S are created primarily to own life insurance and remove the death benefit from the insured’s taxable estate. To achieve the desired estate tax benefit, premiums must be paid by the Trustee on behalf of the ILIT as the policy… Read »
When individuals consider how assets pass upon death, they immediately think of Wills (and perhaps Revocable Trusts for probate avoidance). What often is not considered, and even misunderstood, is that even if individuals have executed valid Wills, their wishes may not be respected. Why – because those estate documents will not generally supersede asset titling… Read »
The annual exclusion gift amount remains at $15,000 for 2019. The annual exclusion gift is the amount that you can give to any recipient during the calendar year without gift tax consequence. For example, in 2019, if husband and wife have two children, they each can give $15,000 to each child, total of $60,000. Upon… Read »
Estate planning involves more than avoiding probate and estate taxes. Probate can be avoided by using Revocable Living Trusts. Estate taxes are not a concern for most U.S. taxpayers with the gift and estate tax exemption now at $11.4 million per person. Because of “portability,” a husband and wife can either gift or pass upon… Read »
The 2019 inflation adjusted amount for the federal gift and estate tax exemption is now $11.4 million per person. Because of “portability,” a husband and wife can either gift or pass upon death $22.8 without paying any gift or estate tax, regardless of how assets are titled among spouses. The $11.4 amount increased from the… Read »
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About Revocable Trusts
John P. Dedon
John P. Dedon is a tax lawyer with a talent for explaining the complexities of tax law in lay terms. Working in the estate planning, asset protection and business areas for more than 35 years, John helps clients preserve assets and plan for the future with traditional planning tools, including Trusts (dynasty trusts, intentionally defective trusts, grantor retained annuity trusts), LLC and partnership entities, and cutting-edge concepts such as cryonic preservation trusts.
Fellow of the American College of Trust and Estate Counsel (ACTEC)
Martindale-Hubbell AV Rating/Top Rated Estate and Taxation Lawyer
Consecutive years named Washingtonian Best Lawyers; Best Lawyers in America® for Trusts and Estates; Washingtonian Magazine’s Top Wealth/Financial Advisor; Top Financial Professional by Northern Virginia Magazine.