Why Irrevocable Life Insurance Trust Might Be Right For You
- Because life insurance proceeds are among the types of assets that are subject to estate tax, an irrevocable life insurance trust may benefit your family in the event of your death. By removing you as an “owner” from your life insurance policy and placing the policy in trust for your spouse and/or children, an irrevocable life insurance trust (IRLT) allows you to avoid estate taxes on life insurance proceeds and ensures that your beneficiaries will be spared from excessive tax burden.
- An IRLT can also protect the cash value of your life insurance policy from your creditors when you die. Because the policy no longer belongs to you, it cannot be considered a part of your estate when your outstanding debts are settled.
- Another benefit to an IRLT is the ability to control when and how your spouse, children, or other beneficiaries will receive the funds from your policy in the event of your passing. When creating an IRLT, you will designate a trustee (separate from yourself or your spouse—generally another family member, a bank official, or an adviser). Upon your death, that trustee will be responsible for distributing the proceeds from your policy in the manner set forth at the time of the IRLT’s creation.
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