Tuesday, January 25, 2011

Irrevocable Life Insurance Trusts

Today's Advisor Forum call was excellent.  Bill Conway and Louis Shuntich discussed Irrevocable Life Insurance Trusts (ILITs) from a Advisor Team approach.  An ILIT is an irrevocable trust that holds life insurance.  An ILIT is used to make the death benefit escape estate tax.  Life insurance already escapes income tax.  Avoiding both tax systems makes life insurance a very attractive investment for the future of your family.

With the estate tax exemption climbing to $5 million, many taxpayers may believe that estate planning and estate tax planning in particular are no longer needed.  Wise families understand that taxes are just one of the many ways family wealth can be confiscated.  Other major risks, which can be far more devestating that taxes, include lawsuits, divorces, and market risk.  Appropriate life insurance in a well-designed irrevocable trust can address and eliminate these risks.

One rather dramatic planning idea that could be excellent for many families is to utilize the new $5 million gift tax exemption by making a large gift to an ILIT that purchases a single premium life insurance policy.  This could create a huge wealth transfer advantage for a family.  This is particular attractive considering the potential "claw-back" of gifts into the estate tax base at death if the estate tax exemption returns to $1 million in 2013.  This is because the "claw-back" would only bring back in the value of the gift at the time of gift, and not any appreciation on that gift.  If the gift is used to buy Life Insurance, then there is a huge leverage for the after tax wealth transfer.

Again, great seminar Bill & Lou!



Andy said...

Thanks Bill for this interesting information on Irrevocable Life Insurance Trusts ... I agree life insurance in a well designed irrevocable trust account can mitigate the risks of losing money ...


Alex Stephen said...

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