Estate planning is one of the most important aspects of managing your client’s financial legacy and ensuring that their loved ones are well taken care of after they are gone. One powerful tool that individuals often overlook is the Irrevocable Life Insurance Trust. In this blog, we will explore the key advantages of incorporating ILITs into your client’s estate planning strategy.
5 Advantages of ILITs for Estate Planning:
1. Tax Efficiency:
One of the primary benefits of an ILIT is its ability to provide tax advantages. Life insurance death benefit is typically not subject to income tax, and by placing the policy within an irrevocable trust, it becomes excluded from the estate tax calculation. This strategic move can significantly reduce the overall tax burden on your client’s estate, allowing more of their assets to be passed on to their heirs.
2. Asset Protection:
ILITs offer a level of asset protection that goes beyond the standard life insurance policy. Placing the life insurance policy in an irrevocable trust shields it from creditors and potential legal claims. This protective measure ensures that the intended beneficiaries receive the full benefit without the risk of external claims diminishing the value of the estate.
3. Control Over Distribution:
Irrevocable life insurance trusts allow the grantor to maintain a certain degree of control over the distribution of the life insurance proceeds. Through the trust’s terms, the grantor can specify how and when the funds are distributed to beneficiaries. This level of control is particularly beneficial when dealing with beneficiaries who may not have the financial maturity to manage a lump-sum inheritance effectively.
4. Preservation of Government Benefits:
For families with members who may be eligible for government benefits, an ILIT can be a valuable tool. By structuring the trust appropriately, it is possible to ensure that the life insurance proceeds do not jeopardize the beneficiary’s eligibility for means-tested government assistance programs. This careful planning helps maintain a safety net for vulnerable family members.
5. Privacy and Confidentiality:
Unlike assets passing through a will, the distribution of life insurance proceeds from an irrevocable life insurance trust occurs privately. Probate proceedings are typically public, exposing the details of your client’s estate to anyone who wishes to access them. ILITs provide a level of confidentiality, allowing your client’s estate and beneficiaries to avoid unnecessary public scrutiny.
Incorporating an irrevocable life insurance trust into your client’s estate planning strategy can yield significant advantages. From tax efficiency and asset protection to controlled distribution and preservation of government benefits, ILITs offer a comprehensive solution for individuals looking to secure their financial legacy.
Although ILITs are valuable assets in an estate plan, they are also complicated and require specific knowledge and regular management. Life Insurance Trust company is the largest corporate trustee in the country and our team of life insurance trust experts are uniquely positioned to maximize the value of your client’s policies while keeping you informed of the trust status. If you have clients who could benefit from trust-owned life insurance but don’t have the time to manage it yourself, contact us to learn about our successor trustee services.
