Life Insurance Trusts

A Life Insurance Trust is often referred to as an ILIT (Irrevocable Life Insurance Trust). This trust is specifically designed to hold a life insurance policy (or policies) outside of the Trustmaker’s estate.

Life Insurance is the “Swiss Army Knife” of estate planning. It is a financial tool or vehicle that when used inside of a properly designed plan can offer a significant return on investment and has many advantages over other types of investment assets. One of the biggest advantages is that Life Insurance moves to the beneficiary completely tax free. The following are some uses of life insurance inside a trust

A.	Leave a legacy to your children when your savings alone are not enough.
B.	Provide cash to your heirs to pay estate taxes and other liabilities without selling off your land, your house, or your antique car collection to do it.
C.	Get money to your spouse or children quickly to see to the affairs of your estate if your assets will be tied up in probate proceedings.
D.	Replace wealth given to charities or lost to taxes from retirement plans
E.	Provide for children from prior marriages
F.	Provide funds for business succession planning or business continuity planning such as buy-sell agreements, stay bonus programs, and ESOPs. (Employee Stock Ownership Plans).
G.	Gift money out of your estate for the benefit of your loved ones or charities. If you have three married children who each have 2 children, at current rates you could move nearly 3 million dollars out of your estate over a 10 year period without incurring any gift tax.

In some very specific and rare circumstances you may even be able to pass on the benefits of life insurance but have a bank take the risk of paying the premiums for you. (For further discussion on this see the information on Premium Financed Insurance in the Advanced Legal Planning section.)

Life insurance trusts need to be drafted specifically for the goals in mind. It is important that the firm who drafts your life insurance trust has a good understanding of your goals and how to achieve them. Improper use of this investment vehicle could have unintended effects.

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1. Inheritance Trusts
2. Special Needs Trusts
3. Life Insurance Trusts
5. Family Bank Trusts