Likely the most important thing to know is that the insured should not act as the Trustee in order to preserve the Irrevocable Life Insurance Trusts benefits. If the insured’s spouse is also an insured and not the beneficiary, he or she could serve, or even perhaps an adult child, however whomever is chosen must have the time and sophistication to manage the ILIT Trusts responsibilities. When policy premiums are due, the Trustee must send out Crummey Letters (from the case of the same name), wait the required amount of time, then pay the policy premium. The Trustee also must file tax returns manage the ILIT’s bank account if necessary.
Basically anyone you choose can be the beneficiary of your Irrevocable Trust. Of course most people normally select their children or other loved ones.
Well, the problem with this method is similar to the problems that are created if you put your child’s name on the deed to your house to avoid estate planning. One problem is that if your child passes away before you do, the value of the policy will be included in the child’s estate for federal estate tax purposes which may be a problem. Also, you will lose control over the policy and the child can cash the policy out, cancel it, or even change the beneficiary to another without even having to ask you. Creditors may even have access to the policy should the child get into trouble.
Please see my Blog for continued discussion of various aspects of ILIT Trusts.
See lots of estate planning information on my website at: www.myestate-plan.com
Please feel free to give me a call and we can establish your Revocable Living Trust, your Irrevocable Life Insurance Trust (ILIT), or other Estate Planning goals today. If you have specific estate planning objectives, I can help create solutions.
Thanks for reading my blog.
William Daniel Powell
This document is for informational purposes only. Nothing in this is to be considered legal advice. Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship. If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction. I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.
Also, please remember that I speak in generalities in my blog and my website. There are so many different factors that can contribute and completely change the outcome that it would be impractical to discuss all of them here.