Chicago Estate Lawyer – Irrevocable Life Insurance Trusts
Irrevocable life insurance trusts are a popular option for Illinois residents who want to avoid large estate taxes on a life insurance policy. Even if you don’t have a big estate, you likely have a life insurance policy. These policies, and the benefits paid upon your death, are generally included in your estate for federal and state tax purposes. An irrevocable life insurance trust (ILIT), on the other hand, takes ownership of your policy while essentially removing the proceeds of the life insurance policy from your taxable estate.
These trusts are quite complicated, and it is recommended to have an experienced Chicago ILIT attorney at your side. At James C. Provenza & Associates, we’ve helped many individuals with their trusts and estates. Below, you can find some of the most important pieces of information regarding these irrevocable trusts.
How an Irrevocable Life Insurance Trust Works
The first thing to note about irrevocable life insurance trusts is that they involve the transfer of a life insurance policy from your ownership to the trust. The creator of the trust appoints the trustee and the beneficiaries who will receive the proceeds. The creator of the trust (grantor) also gives up the right to revise, amend, or terminate the trust without the permission of the beneficiary. Although this may make the trust seem unattractive, it ultimately takes away your “incidents of ownership” in the eyes of the IRS.
Benefits of an ILIT in Illinois
When the grantor gives up control of the life insurance policy, the trustee will then manage the ILIT and the beneficiaries will receive distributions upon death. Once the ILIT is established and funded, some of the benefits can include:
- Minimized federal and state estate taxes
- Avoided gift tax consequences
- Protected government benefits, such as Social Security disability income or Medicaid
- Illinois asset protection
- Control over the distributions of the policy
- Leverage over the generation-skipping transfer (GST) tax exemption
Potential Complications with an ILIT
As with any trust, there are always certain complications to look out for. One of the most important complications is when the grantor of the trust dies. For example, if you die within three years of transferring the life insurance policy to the ILIT, the IRS may still add the policy’s proceeds to your estate for tax purposes. Secondly, because this type of trust is irrevocable, it means that you typically cannot undo it after you’ve set it up.
Contact James C. Provenza for Your Estate Plan
When planning your Illinois estate plan, it is important to consider many different details and potential complications to ensure that your financial legacy is strong and, ultimately, helps your family as much as possible. At James C. Provenza & Associates, we are not only estate planning attorneys, but we are also CPAs who have substantial experience helping individuals create irrevocable trusts and other estate planning strategies. To speak with Provenza about the possibility of an ILIT, you can call our Chicago estate planning office today at (847) 729-3939. Free consultations are available.