The Irrevocable Life Insurance Trust (ILIT)
The following is general information. You should consult an attorney to advise you and to construct any legal documents. An irrevocable life insurance trust, often called by its abbreviation – ILIT, is a unique legal document to help keep the proceeds of a life insurance policy outside of the estate and thus potentially free of estate tax and income tax.
What happens is that the trust, the ILIT, is formed by one’s attorney which becomes the owner and payor of an individual life insurance policy or a survivorship life insurance policy (sometimes called second to die life insurance or joint and survivor life insurance). Money is transferred into the trust and the trustee purchases the policy. When the insured (or insureds on a survivorship life insurance policy) dies, the life insurance proceeds go to the trust for the beneficiaries – usually the children.
The purpose of this whole procedure is to have the life insurance proceeds not become part of the estate where they would be taxed. Gifts of up to $11,000 per year per parent per child are made to the trust using “Crummey” provisions which are named after a tax court case where the petitioner was named Crummey. “Crummey” provisions allow beneficiaries to have a window where they can remove the $11,000 each year.
By doing this the beneficiary changes a future gift to a present gift and qualifies for the annual $11,000 gift tax exemption. For expert advice on the most competitive survivorship life insurance policies or individual life insurance policies contact the experts at www.lifeinsure.com.
