Life insurance may be protected by state law, but its protection depends
on your state. To see if Life Insurance is protected in your state
click here. If you own a large life insurance policy you may title your insurance
policy to an
irrevocable life insurance trust (ILIT). An ILIT is an irrevocable trust specifically designed to own life insurance.
As with other trusts, the ILIT has a trustee, beneficiaries, and terms
for distributions. Your ILIT would own your insurance policy and would
be the policy beneficiary. When you die, your insurer pays the ILIT trustee
who then distributes the proceeds to the ILIT beneficiaries. Your estate
shouldn’t be the beneficiary, nor should you retain other incidence
An ILIT can be unfunded or funded. With an unfunded ILIT, the life insurance
premiums are not fully paid. Future premiums are paid to the trustee who
then pays the premiums. With a funded ILIT you transfer to the trust either
a fully paid insurance policy or enough income-producing assets to pay
future premiums. Whether your ILIT is unfunded or funded, the policy premiums
must be directly paid from the trust. If you directly pay the premiums
you lose the trust’s tax benefits and creditor protection. Since
the ILIT is irrevocable, it protects the policy’s cash value, death
proceeds and trust distributions. If life insurance isn’t
fully creditor protected under your state laws, then an ILIT is essential.
As importantly, the ILIT can save you estate taxes because the ILIT –
not you personally – owns the life insurance. Therefore, policy
proceeds in the trust are not included in your taxable estate. This is
why you save estate taxes. Also, the ILIT gives you greater control over
policy distributions. For example, if you personally own your insurance,
your insurance will directly go to the named beneficiaries when you die.
An ILIT lets you control
when the policy proceeds are distributed. Spendthrift, anti-alienation, discretionary
distribution and other protective provisions in the trust can further
protect the insurance proceeds from your beneficiaries’ creditors.
Do you have exposed cash that you do not foreseeably need? It may be smart to buy
more life insurance. Of course, not everyone needs more life insurance, but
life insurance may be a simple way to shield excess cash from creditors because
every state at least partially creditor protects life insurance. Moreover, it
can be a tax efficient way to build your estate, a retirement nest egg
or simply a way to leave considerably more money to your beneficiaries.
Contact The Presser Law Firm, P.A. for a complimentary preliminary consultation
with one of our experienced attorneys today.
The Presser Law Firm, P.A.
6199 N. Federal Highway, Boca Raton FL 33487
(561) 953-1050 or e-mail Info@AssetProtectionAttorneys.com