The avoidance of estate taxes and the typically pricey and lengthy procedure known as probate, are two essential goals of many estate strategies. For those who have considerable assets that they expect leaving to household and loved ones, estate taxes are a popular consideration when estate planning. The estate tax rate changes on a regular basis, it is usually exceptionally high– often hovering around 50 percent.
One tactic that is typically utilized to prevent subjecting possessions to estate taxes, as well as to avoid probate, is the irrevocable life insurance coverage trust, or ILIT.
As indicated by the name, an ILIT is a trust that can not be revoked, customized or amended once produced. The primary purpose of the trust is to lawfully own a life insurance policy that will pay to the beneficiaries you called in the trust document upon your death.
An ILIT needs you to designate a trustee to oversee the trust. A trust document is then prepared by your estate planning attorney and carried out by you. As soon as the trust document is signed, the trust ends up being a separate legal entity. The trust should acquire a tax recognition number and file yearly tax returns. You, as the grantor, then give cash to the trust as a present. Make certain not to give more than the current tax exempt present limitation for the year. That cash is then used by the trustee to buy a life insurance coverage policy on you. Recipients are called according to the terms of the trust– typically your liked ones or household members. Each year, you gift additional funds to the ILIT to continue to pay the premiums on the policy. When you pass away, the profits of the life insurance policy are then paid to the beneficiaries called in the policy.
The benefit to an ILIT is that the life insurance policy is never ever owned by you. It is not subject to estate taxes. The profits of the life insurance coverage policy are usually transferred straight to the recipients rather of entering into the probate process. Given that the policy and earnings were not owned by you, they are ruled out part of your estate for probate purposes. Similar to many trusts and estate planning tools, there are exceptions, factors to consider and unique circumstances that need assessment with an estate planning attorney.
For those who have significant possessions that they expect leaving to family and loved ones, estate taxes are a popular factor to consider when estate planning. The estate tax rate changes on a routine basis, it is typically very high– frequently hovering around 50 percent. One method that is typically utilized to prevent subjecting assets to estate taxes, as well as to prevent probate, is the irreversible life insurance coverage trust, or ILIT.