As part of their estate plan, Maryland residents may want to create a trust. An irrevocable life insurance trust is one of the many options available.
What is an irrevocable life insurance trust?
Trusts are common tools used in estate planning. An irrevocable life insurance trust or ILIT is used to control a life insurance policy while the policyholder is alive. After the person passes away, the trust can hold the benefits meant to go to the beneficiaries. Both individual and second to die life insurance policies can be held within an irrevocable life insurance trust.
An ILIT is set once you have created it and made transfers into it. This is because as an irrevocable trust, whatever you do, it’s permanent and changes cannot be made. A trustee oversees the trust and ensures that the beneficiaries receive what they’re due upon the grantor’s death.
What are the benefits of an irrevocable life insurance trust?
Irrevocable life insurance trusts offer certain benefits. Although they cannot be changed, the trust is useful in leaving assets to minor children. Children cannot immediately receive money due to not being mature enough to handle it properly. As a result, the trust can hold those assets for the children until they reach a certain age chosen by the grantor to receive it.
Estate taxes can be minimized with an irrevocable life insurance trust. When the benefits of a life insurance policy are inside trusts, the money from the policy doesn’t go through federal estate taxation. In some cases, it can help to pay estate taxes. Gift taxes can also be bypassed with these types of trusts.
Assets are protected when placed in an irrevocable life insurance trust. If the grantor owes a debt to creditors, the creditors can’t touch the assets in the trust when trying to recover what’s owed to them.
If you’re interested in creating a trust, an ILIT might be right for you.