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Home » Estate Planning » Should I Include an Irrevocable Life Insurance Trust in My Estate Plan?

Should I Include an Irrevocable Life Insurance Trust in My Estate Plan?

January 4, 2023Estate Planning

Los Angeles estate planning attorneys

A comprehensive estate plan will work toward achieving numerous interrelated goals that accomplish far more than just planning for the distribution of your estate assets after your death. To accomplish those various goals, you will likely need to make use of numerous and varied estate planning tools and strategies. Trusts, for example, are commonly found throughout the average estate plan. 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 estate planning attorneys at Schomer Law Group, APC explain how an Irrevocable Life Insurance Trust works and discuss why you might want to include one in your estate plan.

The Need for Funeral Planning

Thinking of your death and funeral in terms of the cost may be difficult to do; however, the reality is that dying is expensive. Moreover, by addressing the issue ahead of time you can prepare your estate and your loved ones for the eventuality of your death and the associated expenses.  Experts tell us that, on average, you can expect to pay around $10,000 for a relatively modest funeral and burial service.  Of course, purchasing a high-end casket, planning a larger service, or adding in a more elaborate tombstone will increase the overall cost. While there are several ways you can pre-fund your funeral and burial, a specialized trust known as an Irrevocable Life Insurance Trust (ILIT) is a common choice.

How Does a Trust Work?

A trust is a fiduciary legal arrangement that allows a third party, referred to as a Trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts.

What Is an Irrevocable Life Insurance Trust?

An Irrevocable Life Insurance Trust is a highly specialized trust that provides tax advantages along with the general benefits you get from a trust. Life insurance proceeds usually pass to the named beneficiary free of any income tax; however, the payout from a life insurance policy is generally included in the “gross estate” of the policy owner for estate tax purposes at the policy owner’s death and is potentially subject to federal and state estate taxes. At a tax rate of 40 percent, gift and estate taxes should be avoided whenever possible. An ILIT takes advantage of a loophole created by Congress. If an ILIT is created to own the life insurance policy and the proceeds of the life insurance policy are payable to the trustee of the ILIT upon the insured’s death, then the proceeds are not included in the insured’s estate and, therefore, are not taxable for federal estate tax purposes. This applies even though the insured gives the money to the Trustee of the ILIT to pay the annual premiums of the life insurance policy. 

Along with using an ILIT to provide the funding for your funeral and burial, however, you can also use the trust terms to ensure that your burial and funeral are carried out according to your wishes. For instance, you can use the terms to specify where you want to be buried or make it clear that you wish to be cremated. You can be extremely detailed with your trust terms, providing a list of music, dictating the guest list, and choosing the flowers, or you can keep them general and flexible. Your Trustee will be legally obligated to abide by those terms once the trust is activated. This all but eliminates the possibility of conflict over the details of your funeral and burial.

Contact Los Angeles Estate Planning Attorneys

For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about including an ILIT in your estate plan, contact the experienced Los Angeles estate planning attorneys at Schomer Law Group APCby calling (310) 337-7696 to schedule an appointment.

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Scott Schomer, Estate Planning Attorney
Scott Schomer, Estate Planning Attorney
A graduate of Boston University School of Law, Scott P. Schomer is a frequent lecturer on estate planning and elder law issues, having discussed these important issues on local and national television. A seasoned courtroom advocate, Scott has obtained combined judgments and verdicts in excess of twenty-five million dollars for his clients. Scott has served as a member of the Los Angeles Superior Court Probate Volunteer Panel (PVP Attorney), Probate Settlement Panel and a Judge Pro Tempore. Scott's expertise has been recognized by his peers with such accolades as a life-time membership in the Multi-Million Dollar Advocates Forum, the Five Star Wealth Manager designation, and repeated nominations as California Super Lawyer.
Scott Schomer, Estate Planning Attorney
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We need to update our Living Trust and attended Schomer Law Group’s seminar. Afterwards we made an appointment and were impressed by the attention Scott Schomer and Liran Aliav gave to our case answering all questions and making suggestions how to minimize the estate tax. All the office staff is very friendly and we highly recommend Schomer Law Group.

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When you’re presented with an invitation to attend in a mailer, you may have reservations, this was a truly gift!! My wife and I were educated and guided through the process of creating a family trust.
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