To ensure that you accomplish all your estate planning goals you will likely need to make use of numerous and varied estate planning tools and strategies. A trust agreement is one estate planning tool that is commonly found in an estate plan. In fact, trusts have evolved to the point where there are a variety of highly specialized trusts that serve very specific purposes. One such trust is an irrevocable life insurance trust, or ILIT. The Los Angeles attorneys at Schomer Estate & Wealth Advisors discuss advantages and disadvantages of irrevocable life insurance trusts.
The Importance of Funeral Planning
Contemplating the financial aspects of one’s death and funeral may be a challenging task, but the reality is that the cost of dying can be substantial. Addressing this matter in advance allows you to organize your estate and prepare your loved ones for the inevitability of your passing and the associated expenses. Experts suggest that, on average, a relatively modest funeral and burial service can cost around $10,000. The overall cost can increase if you opt for a high-end casket, plan a larger service, or choose a more elaborate tombstone. While there are various ways to pre-fund your funeral and burial, one common choice is the utilization of a specialized trust known as an Irrevocable Life Insurance Trust (ILIT).
Understanding How Trusts Operate
A trust is a legal arrangement where a third party, known as a Trustee, holds assets on behalf of a beneficiary or beneficiaries. Trusts fall into two categories: testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death, while a living trust activates once all formalities are in place and the trust is funded. Living trusts can further be categorized as revocable or irrevocable.
Exploring the ILIT
An Irrevocable Life Insurance Trust (ILIT) is a highly specialized trust that offers both tax advantages and general trust benefits. While life insurance proceeds typically pass to the named beneficiary without income tax, they are often included in the “gross estate” of the policy owner for estate tax purposes upon the owner’s death, potentially subjecting them to federal and state estate taxes. With a tax rate of 40 percent, it is advisable to avoid gift and estate taxes when possible. An ILIT capitalizes on a Congress-created loophole. By creating an ILIT to own the life insurance policy and making the proceeds payable to the trustee upon the insured’s death, the proceeds are excluded from the insured’s estate, making them non-taxable for federal estate tax purposes. This exemption applies even when the insured provides funds to the ILIT trustee for the life insurance policy’s annual premiums.
In addition to funding your funeral and burial, an ILIT allows you to use trust terms to ensure that your final wishes are followed. Whether specifying your burial location, expressing a preference for cremation, or detailing aspects like music, guest list, and flowers, the trust terms provide clear guidance. Your Trustee is legally bound to adhere to these terms, significantly reducing the likelihood of conflicts over the details of your funeral and burial.
Do You Have Additional Questions about How an Irrevocable Life Insurance Trust Fits into Your Estate Plan?
For more information, please join us for an upcoming FREE seminar. If you have questions about incorporating an ILIT into your estate plan, contact the experienced Los Angeles estate planning attorneys at Schomer Estate & Wealth Advisors by calling (310) 337-7696 to schedule an appointment.
- How a No Contest Clause Can Help Your California Estate Avoid Probate Litigation - August 17, 2026
- Reasons to Incorporate a Living Trust into My California Estate Plan - August 16, 2026
- What You Need to Know about Funding a Trust in California - August 15, 2026
