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.
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.
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.
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!!!)
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.
Have the trustee of the ILIT apply for the insurance on the life of the intended person.
Essentially, the trustee will need to purchase the insurance on behalf of the ILIT and beneficiaries.
When the life insurance has been approved (and the beneficiaries have either lapsed on their rights to withdraw), the trustee purchases the policy
Fairly straightforward, just remember to make sure both conditions have been followed!
Maintain the ILIT
The trustee will need to repeat the steps 4 through 7 on a yearly basis.
Upon death of the insured person, the funds should flow to the beneficiary outside of probate
If all of the steps have been followed properly, the trust should pass the IRS scrutiny providing the liquidity for the beneficiaries.