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ILIT
Irrevocable Life Insurance Trust
What's it for?
There is a life insurance policy in a trust. The insured person makes the premium payments but the policy is owned by the trustee of the trust. Upon the death of the insured, the policy amount is paid out to the beneficiaries.
The policy is not part of the insured's estate.
It is a way to get cach to beneficiaries when insured dies.
This is a complex trust where the parties need to be aware of gift, estate, and GST consequences. It requires what are called Crummy powers to allow the insured to pay the yearly insurance premiums but have them qualify as gifts to the beneficiaries.
This type of trust allows the estate, through the beneficiaries to acccess cash in an estate that may not otherwise have cash.
Settlor
The insured person
Trustee
Applies for the policy - Owns the insurance policy
Beneficiaries
Gets payout
The Hard Part
The main complication of this kind of trust is that the payment of premiums needs to be a gift to the trust beneficiaries. And under the yearly limit. This is necessary to...
Also in order for it to be a gift, the beneficiaries have to be able to accept the gift now. So they need a right to get the money when it's donated by the settlor to pay the insurance policy. But they aren't supposed to take it. If they die while they have a right to it, it's included in their estate.
Is It Right For You
The main complication of this kind of trust is that the payment of premiums needs to be a gift to the trust beneficiaries. And under the yearly limit. This is necessary to...
Also in order for it to be a gift, the beneficiaries have to be able to accept the gift now. So they need a right to get the money when it's donated by the settlor to pay the insurance policy. But they aren't supposed to take it. If they die while they have a right to it, it's included in their estate.
There is a life insurance policy in a trust. The insured person makes the premium payments but the policy is owned by the trustee of the trust. Upon the death of the insured, the policy amount is paid out to the beneficiaries.
The policy is not part of the insured's estate.
It is a way to get cach to beneficiaries when insured dies.
This is a complex trust where the parties need to be aware of gift, estate, and GST consequences. It requires what are called Crummy powers to allow the insured to pay the yearly insurance premiums but have them qualify as gifts to the beneficiaries.
This type of trust allows the estate, through the beneficiaries to acccess cash in an estate that may not otherwise have cash.
More Details
Income Tax
There would be income tax to the settlor if there is income. But there usually isn't any income since all the trust does is hold and insurance policy and pay premiums.