The estate planning benefits of an irrevocable trust

On Behalf of | Apr 15, 2022 | Estate Planning

An irrevocable life insurance trust (ILIT) is a financial agreement that cannot be modified or rescinded after it is created. The trust is funded by your life insurance policy, and there are numerous benefits when using this option for your estate planning in Colorado.

Death benefit

A death benefit is money that is given to your beneficiaries after your death pursuant to the policy. An irrevocable life insurance trust allows you to decide how and when your death benefit will be used.

Cash on hand

An ILIT gives cash on hand to help your beneficiaries after you die. Use the funds to pay for estate taxes and other major expenses without having anyone pay out of pocket.

Gift tax

As the grantor, you are expected to pay monetary gifts to the trust to cover the premiums of your life insurance policy. An annual gift that is $14,000 per recipient qualifies for a gift tax exclusion. An ILIT is an affordable way to provide funds that are not taxed.

Estate tax

This type of estate planning is an appropriate way to save money on taxes. As the policy is now owned by the trust, it is not deemed to be part of your estate. The proceeds of your life insurance policy are not subject to a federal income tax.

Review the full range of benefits for your trust

An irrevocable life insurance trust is derived from your life insurance funds. However, you will not have to pay federal estate taxes after your death. The ILIT has irrevocable terms that you cannot amend. If you become the grantor, you need a trustee and beneficiaries who will benefit from your trust funds. Despite the permanent terms, you’ll save money on taxes and have money to cover important expenses.