The AE Team
Irrevocable Life Insurance Trust
- What is an Irrevocable Life Insurance Trust?
- Why use life insurance to pay estate taxes?
- How is life insurance “structured” to avoid taxes?
- Do you have to use an Irrevocable Trust to own life insurance?
- Why use an Irrevocable Trust?
- How does an Irrevocable Life Insurance Trust work?
- Are there any limits to the gifts made each year?
- What does the Trustee do with the gifts received?
- What happens when the Grantor (Insured) dies?
- What if Congress changes the exemption amounts?
Do you have to use an Irrevocable Trust to own life insurance?
The alternative to using an Irrevocable Life Insurance Trust is to give policies, or cash to purchase policies outright to the children or successor generation, who would then individually own a policy or policies on the life of the Grantor.
The advantage is that you can save the cost of using an attorney to create your Life Insurance Trust.
There are also disadvantages for the Grantor to consider:
- Will the recipients maintain the policies or liquidate them to access the cash values?
- Will the recipients use the policy proceeds for the intended purpose of providing liquidity for payment of taxes?
- Will the recipient lose the policy through a divorce or judgment of a creditor?