Life insurance is a powerful estate planning tool that may be used to provide for children/grandchildren and reduce estate taxes, especially if the value of your estate exceeds the estate tax exemption amount.As with trusts in general, the objective is to transfer assets out of your estate and into an Irrevocable Life Insurance Trust (ILIT). You may transfer an existing life insurance policy into an irrevocable trust or obtain a new policy with the irrevocable trust directly.

The life insurance policy is owned by the irrevocable trust and the annual premiums are paid by the irrevocable trust.  Each year, as the premiums come due, you transfer money from your personal name and into the irrevocable trust (the amount transferred will generally max out at the annual gift tax exclusion amount to avoid triggering gift tax issues) and the irrevocable trust then pays the premiums.  This accomplishes several things.  First, you are reducing your taxable estate by transferring money into the trust each year.  Therefore there will be less to tax at the time of your death.  Second, life insurance death proceeds, where the life insurance policy is owned by the irrevocable trust, are not taxable.  Finally, the life insurance proceeds passing to your beneficiaries are income tax free.

Estate planning and estate tax planning is a complex and, many times, overwhelming process.  However, with our guidance and expertise, we can help you plan for your future and your loved ones’ futures.  As your attorney, we will work closely with you to implement and sensible and feasible estate plan that accomplishes your goals and meets your needs.

The attorneys at James G. Dibbini & Associates, P.C. have over 20 years of experience in Wills, Trusts & Estates.

In order to learn more about Irrevocable Life Insurance Trusts or if you have any other questions about Wills, Trusts & Estates, please feel free to contact us directly.