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Drafting Life Insurance Trusts

With Our Pasadena Estate Planning Attorneys

Many people are not aware that the IRS has rules concerning the proceeds from life insurance policies that may make those proceeds a part of their estate for estate tax purposes. This can have the effect of driving up the total amount of the estate tax charged against the decedent’s estate.

What is an Irrevocable Life Insurance Trust (ILIT)?

An irrevocable life insurance trust or “ILIT” is a legal instrument that your attorney can create for your family which is specifically designed to hold and own your life insurance policies. In placing the insurance policy in the ILIT, your family will no longer have to worry about the proceeds of your insurance policy driving up the total estate tax when they receive the proceeds from the policy.

What Are the Benefits of an ILIT?

While you cannot be the trustee of an ILIT, your spouse or your children may be the trustee. This ensures that your family still controls the money you’ve placed into this investment vehicle. Furthermore, placing your life insurance into an ILIT will ensure that your family pays the minimum tax possible on your estate. Therefore, an ILIT can provide your family with the quick cash to pay your estate tax bill while at the same time, not increase your overall estate tax burden

Do I Need an ILIT?

Only a legal or tax professional can answer that question for you since the answer to that question will depend on your financial situation as well as other factors. You should speak to your estate planning attorney in Pasadena to see if your family will benefit from having an ILIT as a part of your comprehensive estate plan.

Can’t I Just Place My Life Insurance Policy into the Same Irrevocable Trust that Holds My Home & Other Assets?

Currently, IRS regulation and US tax laws will not allow you to enjoy the tax benefits of an ILIT by placing your insurance policies into the same irrevocable trust that holds your home and other assets. It is always advisable that you speak to your estate planning attorney prior to altering any will or trust in any way as in doing so without competent legal advice may result in severe unintended consequences for your estate and family.

To learn more about life insurance trusts and how we can help you, please feel free to contact us today at (626) 325-0770. Call now and speak with an experienced estate planning lawyer in Pasadena or schedule a consultation.

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