What is an Irrevocable Life Insurance Trust? – Estate Planning ILIT


hello everybody again I’m Michael Redden
and we’re gonna talk about another pretty hot topic in estate planning
that you guys are pretty interested in and that is the irrevocable life
insurance trust another buzzword you’ll hear your financial advisers and other
people talk about they’ll call it an ILIT- irrevocable life insurance trust.
these are important because most planning that goes around the death tax
or the estate tax or any of those kinds of transfer taxes is going to
involve some kind of life insurance planning and a trust like this but
before we get into that I want to kind of help you out with all these acronyms
don’t worry if you don’t recognize these some of you will most
of these will get their own video at some point if you hear about an IDGIT, an ILIT, a QPRT, a SRT, a BDIT, a QDOT any of those things
the t at the end means trust and all the stuff in front
of it is really a feature you don’t necessarily need 8 trusts, one for each
purpose, you got a reason to have another trust any trust that can hold life
insurance that’s irrevocable is an ILIT even if it’s your DAPT your
asset protection trust intending to keep creditors out of everything if it’s that
and it can own life insurance it’s also an ILIT
if this trust can last forever no matter what features on its it also a dynasty
trust so don’t get confused by those things a trust is a trust but any of
those big buzzwords that stuff is just a feature so the reason the ILITs are
great is because when we’re looking at when we’re looking at the estate taxes
and things we don’t want to put the life insurance in your name because if we go
buy a 2 million dollar life insurance policy and you own it at the time you
die we just gave 2 million more dollars for the government to tax and we really
intended for that just to pay the tax out so we increased your tax bill so
what we’ll do a lot of times with an ILIT is we will have we’ll make it at the
time you go to buy the policy the trust will buy it that way you never owned it
it’s never in your estate you’re still gonna put money into the
trust whether it’s a gift or otherwise we can talk about gifts and things of
the trust later but you’re going to provide the money and the trustee is
gonna pay the premiums and because of how we did that that two million dollars
does not add to your tax bill. it can pay the tax bill because our estate strategies
are either gonna be get it out of your estate or plan for a different way to
pay the tax leverage it so the risk is on the insurance company as long as we
can keep the life insurance going so that’s one of those things that we’re
kind of looking at and that’s what you should think about with these now a lot
of times the life insurance trusts they can serve a dual purpose your spouse
could have access when you’re gone if if they need it to so it can be kind of
like that deal but then when it goes down to the children and everything like
that after the wife passes that’s where the real fun begins it can still be a
protected trust by having a spendthrift clause it can provide for all those
kinds of things that you were thinking about and another really big important
reasons why we have these things is estate liquidity if your estate doesn’t
have money to pay taxes and fees or pay off even the debts on your house then
you got to sell the house and that’s probably not what you intended you
intended for them to live in that home not sell the home pay off so they can
pay off the mortgage and keep it because your heirs may not be credit worthy
enough to get a mortgage at the end but the bank is not going to sit there with
you being dead and there being a mortgage on there and just take payments
from the beneficiaries they’re gonna come instead of the taking payments from
your kids they’re gonna foreclose in the house those kinds of reasons why you
need estate liquidity and life insurance at an island just provides
that that way that’s non-taxed money to get the get that get that kind of funds
and pay those things off so keep that stuff in mind and a lot more people
should be thinking about an ILIT then do now because Minnesota’s estate
tax is very low and if you need estate liquidity you should probably think
about it

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