Irrevocable Life Insurance Trust (ILIT) Attorney San Antonio TX
An Irrevocable Life Insurance Trust (ILIT) is an irrevocable trust established to hold insurance on the life of the grantor. An ILIT is used to remove life insurance proceeds from a taxable estate for estate tax purposes. Under Internal Revenue Code § 2042(2), insurance proceeds can be excluded from the trust grantor’s gross estate for estate tax purposes where the grantor does not possess any “incidents of ownership” over the insurance policy at the grantor’s death and for the three-year period preceding the grantor’s death. The grantor can relinquish incidents of ownership by using an ILIT where the grantor sets up an insurance trust, names a person other than grantor as trustee, and the trustee acquires an insurance policy on the life of the grantor and names the trust as the beneficiary of that policy, then the policy proceeds can be excluded from the grantor’s gross estate. For an ILIT to effectively work, the grantor cannot possess other incidents of ownership over the policy, for example such as the right to surrender or cancel the policy , right to name the beneficiary, right to assign the policy, the right to pledge the policy, or otherwise possess any other economic benefits of the policy, or the proceeds will be included in the grantor’s estate.
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An Irrevocable Life Insurance Trust (ILIT) is a valuable estate planning tool that allows the grantor to remove life insurance proceeds from their taxable estate, providing significant tax savings. By setting up the trust properly and relinquishing all incidents of ownership, the policy proceeds can be excluded from the grantor’s estate, helping to avoid unnecessary estate taxes. If you are considering using an ILIT to protect your assets and reduce estate tax liability, contact Carroll Law Group today. Our experienced estate planning attorneys can guide you through the process and ensure your ILIT is structured correctly to meet your financial goals.