An irrevocable life insurance trust, also known as an ILIT, is a trust that can’t be changed or rescinded once it is created. These trusts are created with a life insurance policy and the policy serves as an asset that the trust owns. If you live in Texas and are in the midst of estate planning, here are some important things to keep in mind about ILITs.
Why would an ILIT be a good choice?
An ILIT is often used in estate planning to designate assets for specific purposes. To accomplish this, the assets you select must be transferred into your life insurance trust. However, the transfer must occur at least three years before you can use the assets. To get around this requirement, you can create new policies in your spouse’s name.
Ensuring responsibility for the ILIT
If the person with the insurance policy has beneficiaries who are children or adults and don’t have organized financial habits, such as due to drug or alcohol abuse, creating an ILIT with the trust as the beneficiary during the estate planning process can help reduce reckless behavior. The trustee who has been appointed to supervise the trust can distribute the funds or assets according to the instructions of the grantor which should be detailed in the trust document. ILITs provide protection for assets if beneficiaries are involved in court proceedings in the future. Since beneficiaries are not the technical owners of ILITs the courts may not readily connect the trust’s assets to the children or other relatives who are supposed to receive the assets or property from the trust.