Life insurance is a great way to provide financial security for your loved ones. However, many people are not aware that their life insurance policy can be included in their taxable estate, so their beneficiaries might not receive the full amount. Fortunately, a Covina Irrevocable Life Insurance Trust (ILIT) can help with this barrier.
An ILIT removes your life insurance policy from your estate, potentially reducing estate taxes and ensuring your loved ones receive the full benefit. Because it is irrevocable, meaning you cannot change it after it is created, it is essential to set it up correctly. At Amity Law Group, our dedicated trusts attorneys could help determine if an ILIT is right for you and structure it to maximize benefits.
Understanding an Irrevocable Life Insurance Trust
An ILIT is a trust specifically designed to own a life insurance policy. One of the benefits is that it helps reduce estate taxes. When you own a policy in your name, its payout may be subject to estate taxes. But if the policy is held within an ILIT, it is considered separate from your estate, which can reduce or eliminate taxes.
Once the trust is established, you transfer ownership of your life insurance policy to it. As a result, the trust becomes the owner of the policy. This is why it is not included in your taxable estate. Upon your passing, the insurance proceeds are paid directly to the trust, which distributes funds according to your wishes.
Benefits of an ILIT
One of the significant advantages of an ILIT is a reduction in your taxable estate. An ILIT is for anyone in Covina looking to maximize their life insurance benefits while protecting their estate. Here are some key reasons to consider one:
- Estate Tax Reduction–If your estate is valued above the federal exemption limit, an ILIT can help reduce your estate tax liabilities
- Asset Protection – Since the trust owns the policy, creditors cannot access the insurance proceeds
- Controlled Distribution – You can specify how and when beneficiaries receive funds, preventing misuse
- Avoiding Probate – ILIT proceeds pass outside of probate, ensuring quick access to funds for your heirs
If any of these concerns apply to you, an ILIT might be an innovative estate planning tool to explore.
How Does an ILIT Work?
Setting up an Irrevocable Life Insurance Trust in Covina involves a few key steps, including the following:
- Creating the Trust – You draft the trust agreement with an estate planning attorney.
- Naming a Trustee – Since you cannot serve as the trustee, you must appoint someone to manage the trust
- Transferring the Policy – The trust becomes the owner of the policy, removing it from your taxable estate
- Funding the Policy – If the trust purchases a new policy, you make annual gifts to cover the premiums
- Distributing the Proceeds – After your passing, the trust distributes funds according to your instructions
Because ILITs are irrevocable, you cannot regain control once they are created, so careful planning is essential.
Discover if an Irrevocable Life Insurance Trust in Covina is Right for You
An ILIT can be a valuable estate planning tool, but it is not for everyone. If you have a large life insurance policy, want to reduce estate taxes, or need structured wealth distribution, it might be worth considering.
At Amity Law Group, our seasoned estate planning attorneys could help you determine whether a Covina Irrevocable Life Insurance trust fits your needs and ensure it is appropriately set up to maximize its benefits. Contact us today to secure your legacy and protect your loved ones.
