There are many trusts out there that provide a range of benefits to individuals, but the irrevocable life insurance trust can be a helpful tool as a holding entity. Whether you’re in Kentucky or Indiana, life insurance can provide critical funds to loved ones in a time of need. Life insurance can help replace the lost individual’s salary or wages or provide for bigger needs like a mortgage or college education.
Like the foundation of many other trusts, your life insurance policy is technically owned by another entity- the trust. Bear in mind that that term “irrevocable” means that you typically can’t alter the ownership of the policy after it has been handed over to the trust.
Used appropriately, an irrevocable life insurance trust (ILIT) can address some of the most common challenges associated with estate planning. The cash value of the policy may be protected from creditors, and you can draft the trust agreement to control how and when your beneficiaries receive proceeds and assets from the policy. The ILIT may also reduce the overall size of your taxable estate (thus decreasing your tax liability), and you may be concerned to protect benefits for a beneficiary receiving government assistance.
While this brief overview makes it sound quite simple, it’s important that an attorney draft your ILIT documents for accuracy to ensure that they are in compliance with state and federal laws. For estate planning purposes, an ILIT is a helpful approach to typical challenges.