Does Your Estate Require an ILIT?

Does your estate require an ILIT - The Irrevocable Life Insurance Trust?

What’s an Irrevocable Life Insurance Trust?

  • An ILIT (known as a “Crummy Trust”) is a planning tool that is used to keep insurance proceeds outside of a taxable estate.
  • The trust has its own Federal tax ID number.
  • The trust is the applicant, as well as the owner and the beneficiary of the
    insurance contract.
  • You as the guarantor(s) (insured), cannot have any incidence of ownership in the life insurance contract.
  • If you need large amounts of insurance there can considerable estate
    tax advantages with an ILIT.

Within your estate plan, life insurance may be used to:

  • Pay estate taxes
  • Equalize the estate between heirs
  • Fund state death taxes
  • Fund business continuation plans (Ex: buy-sell agreements)
  • Provide funds for charitable bequests

The main objectives of the ILIT strategy include:

  • Removing your life insurance from your gross estate while still providing
    benefits for your surviving spouse and/or heirs
  • Taking advantage of the $13,000 ($26,000 for married couples) annual gift tax
    exclusion (year 2012)
  • Using generally income tax-free death benefits to provide liquidity to the estate

How does an ILIT work?

The ILIT may be used as part of an overall estate plan. The following is an example: Tom is single father. As part of his estate plan, he wishes to minimize estate taxes to his children (heirs). Because Tom’s taxable estate is estimated over $5 million and Tom is in need of life insurance, an ILIT may be an advantageous planning strategy. Tom plans on
having an ILIT purchase the needed life insurance (ILIT owner; Tom insured and (ILIT beneficiary) and using his annual gift tax exclusions to gift monies to the ILIT, which will in turn use the gifted monies to pay the premiums.

Do you still have questions about ILITs? The SAIL Group is here to help. We have professionals that can sit down with you and assist you in choosing the right life insurance in Rockford for you.

The SAIL Group Inc.
5301 E State St #106
Rockford, IL 61108
(815) 282-3480