Life insurance is a good way to protect your loved ones after your death and can be an important part of your estate plan. Life insurance gives the policyholder a guaranteed amount of insurance that they can access during their lifetime, and they can leave the insurance policy to their heirs. The proceeds from a life insurance policy count towards the taxable value of your estate. Transferring retirement income from IRAs and other funds into a life insurance trust may be a good option to lower estate taxes
You can designate any funds from a current life insurance policy or a new insurance policy to go into an irrevocable trust to provide income for your heirs. The creator or grantor of the ILIT gives up ownership of a life insurance policy and makes the trust the owner. The trust is a separate legal entity that owns the insurance policy, and the ILIT trustee would distribute any proceeds to the beneficiaries after the grantor’s death. An Irrevocable Life Insurance Trust (ILIT) in Illinois protects your estate from taxes so you protect your loved ones after you are gone. You must contribute funds to the trust each year to pay the life insurance premiums.
Here are some benefits to using an ILIT:
1. Life insurance policies in a trust are not part of your estate and do not go through probate.
2. Transferring your money into an ILIT reduces your overall taxable estate, and can put you in a lower Illinois estate tax bracket or eliminate your estate tax entirely.
3. The proceeds from the life insurance policy after the owner’s death can be used to pay estate taxes instead of selling assets to pay the taxes.
4. Life insurance funds provide cash at the policy holder’s death to pay for funeral expenses, debts and income taxes of the insured.
5. These life insurance funds can provide income for a surviving spouse, children, and any other beneficiaries.
Life insurance can provide financial security for your loved ones. Creating an ILIT may save your heirs time and money. If you have a sizable life insurance policy, you can protect its value and your loved ones with an irrevocable life insurance trust.
Do you have questions about a life insurance trust? Our experienced estate planning attorneys in Cook, Dupage, Kane, Lake, and Will counties in Illinois can advise you on the best options to protect your assets and loved ones. To talk to an estate planning attorney contact the Estate & Probate Legal Group at 630-687-9100.