4 Reasons to Consider an ILIT (Irrevocable Life Insurance Trust)

Using an ILIT, or irrevocable life insurance trust, can provide you with several benefits in your estate planning process. Here are a few reasons that you might want to consider using an ILIT when you are planning for the future.

1. No Lost Income

One of the big benefits of using an ILIT is that you will not have to lose any income while your money is producing assets.  Many other types of trust arrangements require you to put assets into them before you die. When you do this, you can lose access to these assets and it could negatively affect your financial situation. With an irrevocable life insurance trust, this is not going to be the case. You will be able to put a life insurance policy into the trust and you will not have to worry about anything else. Since life insurance is a product that you are used to paying for in order to help your family, this is not going to be a big change.

2. Create Liquidity

Another benefit of using this investment tool is that you can create liquidity. Many people, with sizable estates, have much of their estate tied up in assets that are not liquid. For example, you might own several pieces of real estate that are valuable, but you may not have much cash when you die. Because of this, it may be difficult for your beneficiaries to come up with enough money to pay the estate taxes that will be due once you pass. Your beneficiaries will be required to sell the property and that can take some time. With this type of trust, you will create an instant source of cash for your beneficiaries. In this way, they can pay estate taxes.

3. Generation Skipping Transfer Tax Exemption

This type of estate planning tool will also you to benefit from generation skipping transfer tax exemptions. If you try to give a substantial amount of money to your grandchildren when you die, the money is going to be subject to a generation skipping transfer tax. However, if you structure this transfer through your ILIT, you can get around paying much of this tax.

4. Protect Beneficiaries from Creditors

Another benefit of using an irrevocable life insurance trust is that you will be able to shield the money from your creditors. If you simply purchase a life insurance policy and make your children the beneficiaries, your creditors could potentially take some of the money in order to satisfy your debts when you die. If you put your life insurance policy into an irrevocable life insurance trust, this will not be the case. All of the money from the policy is going to go to your beneficiaries instead and will not go to pay any of your creditors. This ensures that your beneficiaries are going to be taken care of, regardless of any debts that you currently owe. 

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