You see a veritable alphabet soup of acronyms referenced when you delve into the topic of estate planning. We like to take a look at some of these acronyms from time to time in an effort to demystify the terminology. With this in mind, we would like to highlight the ILIT or Irrevocable Life Insurance Trust.
The federal estate tax looms large when you are planning your estate. At the current time it is carrying a 35% rate, and this rate is scheduled to rise to 55% at the end of the year. Clearly, this levy can erode your legacy significantly and if you are in fact exposed to the estate tax, you must take steps to gain estate tax efficiency.
Life insurance proceeds are subject to the estate tax if the overall value of your estate exceeds the exclusion amount. As a response, you may want to place your life insurance policies into an irrevocable life insurance trust. Since the policy assets are directed into the ILIT, you don’t technically own them when you pass away so the beneficiary of the ILIT is not required to pay the estate tax.
If you designate your ILIT beneficiary as your spouse, you can designate your children as secondary beneficiaries. In this manner, they could benefit from the trust after the death of your spouse without incurring any estate tax liability.
For a more detailed explanation, simply take a moment to arrange for a consultation with a licensed and experienced Campbell, California estate planning attorney.