The primary function of a Irrevocable Life Insurance Trust (ILIT) is to avoid estate death taxes on the proceeds from the estate of the deceased peron. If not done properly, the life insurance money may be included in the decedent's estate and be taxed as high as 55 percent by the IRS!
1
Access your Life Insurance Needs and the Liquidity Requirements of Your Future Estate
Analyze your family or dependent's needs in light of your death. How much money will it take to keep them comfortable in the lifestyle you've been providing. Remember to account for cost of living adjustments as well.
2
Hire an Attorney to Work with you to Draft an ILIT
Look for an attorney that is familiar with both life insurance products as well as estate planning techniques. Be sure that you review any existing policies (and beneficiary designations) with the attorney so that he can have the complete picture.
3
Create and execute the ILIT
Working with your attorney, you will execute a legally binding irrevocable life insurance trust (ILIT)that will become the vehicle to manage your life insurance needs.
4
Fund the ILIT
Make a gift to the ILIT of sufficient funds to cover the premium on the insurance, or transfer the existing insurance ownership (be careful with this as there are formalities that must be followed!!!)
5
Offer the beneficiary of the ILIT the right to withdraw their share of the gift
This is important to do in writing to make sure you are compliant with the IRS requirements.
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