What is an irrevocable Life Insurance Trust:
Generally an Irrevocable Life Insurance Trust is a value to those persons who have a significant amount of money and assets that will be inherited by those acting as beneficiaries of the Trust or Will. The reason for this is that Estate Planning Lawyers primarily use a life insurance trust as a means of limiting Federal Estate Taxes. Currently an Estate pays no Federal Estate Tax if the value of the Estate is less than a certain dollar value certain. Many people do not realize that although the person named as the beneficiary in a life insurance policy is not taxed for the benefit there are many times when the value of the insurance benefit will be added to the dollar value of the Estate from which it came thereby placing the value of the Estate over the maximum value need to avoid Federal Estate tax.By placing the ownership of the insurance policy with an irrevocable trust and not the insured it removes any death benefit from your total taxable estate value
Limitations of the Irrevocable Life Insurance Trust: Because your are creating an irrevocable Trust it is important that you don’t latter decide you want to change the beneficiary to another person. Once created there are very limited circumstances that can be used to invalidate an irrevocable trust. Moreover, if you want to borrow money against the insurance policy you will mot be able to as its beyond your control. Another problem can arise if you attempt to transfer the ownership of a current life insurance policy to the irrevocable life in insurance trust. This is because if you die within three years of the transfer the death benefit is still subject to estate taxes.