Much more goes into estate planning than many Connecticut residents might think. Usually, movies and Hollywood will only focus on a last will and testament – as if that’s the only way to pass your belongings onto your beneficiaries.
In reality, there are a lot of estate planning tools that work in conjunction with each other in order to create a safety net for your surviving loved ones. A popular estate planning tool available to Connecticut residents is the Irrevocable Life Insurance Trust.
What is an Irrevocable Life Insurance Trust?
Trusts are a very common estate planning tool that’s used to give a person more control over how their assets are passed down and used. It’s also a good way to reduce estate taxes on the assets passed to your beneficiary.
An Irrevocable Life Insurance Trust – also known as an ILIT for short – is a trust that is funded exclusively with money from one or more life insurance policies. One of the defining features of an ILIT is that changes cannot be made to the trust once it’s set up.
Everything about the ILIT is irrevocable or permanent, from the terms and conditions to the money that’s put into it. While this can sound intimidating, there are some pros to setting up an ILIT.
What makes ILITs beneficial?
The biggest benefit to setting up an ILIT is the tax benefits. By having your insurance policies in an ILIT, they become immune to federal estate taxes. This means that when your estate is itemized and taxed, the life insurance policies won’t be included.
This can create a nice cushioning for your surviving family. Another benefit to an ILIT is the control it gives the trustor. They can set forth explicit terms and conditions for how the money must be used and distributed, which can help give additional guidance to surviving beneficiaries.
Of course, having a strict set of rules might be a downside to many. Every family is different, so it’s up to the person creating their estate plan to decide if an ILIT is the right tool for them.