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.
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For Our First Meeting
About Revocable Trusts
John P. Dedon
Of Counsel
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.
Recognitions
Fellow of the American College of Trust and Estate Counsel (ACTEC)
“Hall of Fame” Washingtonian magazine Top Wealth/Financial Advisor
Martindale-Hubbell AV Rating/Top Rated Estate and Taxation Lawyer
Consecutive years named Washingtonian Best Lawyers; Best Lawyers in America® for Trusts and Estates; Top Lawyer and Top Financial Professional by Northern Virginia Magazine; Legal Elite by Virginia Business magazine