This article is series two of the series of estate planning articles pertaining to Irrevocable Life Insurance Trusts.
An Irrevocable Life Insurance Trust is not just for the wealthy with estates over $5.25 million. This type of Trust may be useful for asset protection for mid-size estates to provide protection from potential lawsuits and claims.
For instance, when a life insurance policy is held by the trust, the cash value (if any) and the proceeds are also protected from potential creditor claims. As part of your Estate Planning, you can arrange for a set amount of savings to be transferred to the trust annually and the funds in the Irrevocable Trust will be used to pay on the policy. Over time, a large amount of value can be created in the Irrevocable Life Insurance Trust.
For example, one of my forty-two (42) year old clients had a large enough income to transfer the maximum of $14,000 per year without gift tax consequences. Therefore, as part of her Estate Planning, we set up a Life Insurance Trust for her to achieve the following asset protection benefits:
- The annually deposited money transferred each year and the plan proceeds were fully protected against potential creditor claims and lawsuits.
- The money transferred worked similarly to a 401k plan wherein the money grew and compounded without any income taxes.
- Any needs of the trust could be withdrawn from the cash value of the policy.
- Upon her death, the plan proceeds would be available for her family avoiding any income or estate tax.
Creating an Irrevocable Life Insurance Trust may be a viable option in your Estate Planning process when utilizing a viable method of asset protection against creditors, thereby protecting your family estate against any future legal actions. There are several options to explore in the Estate Planning process and a Life Insurance Trust is just one of many instruments worth looking into with an attorney specializing in asset protection.
Therefore, before creating an Irrevocable Life Insurance Trust for your estate plan you may want to meet with an attorney to discuss and handle the drafting of your estate planning instruments to ensure the maximum benefit of an Irrevocable Life Insurance Trust is achieved by the insured.
FULL DISCLOSURE
This article only reflects my personal views and is not construed to create an attorney-client relationship. The case-specific information contained in this article is for illustrative and educational purposes only. The article is not intended to provide any specific legal advice. Article topics may or may not be updated and entries may be out-of-date at the time you view them.