What is an ILIT

An ILIT, or irrevocable life insurance trust, is a legal entity. ILIT is used to hold a life insurance policy for the benefit of designated beneficiaries. The trust is irrevocable, meaning that it cannot be changed or terminated once it has been created.

Estate and an ILIT

There are several reasons why someone might create an ILIT. One common reason is to reduce the size of their taxable estate. By transferring ownership of a life insurance policy to an ILIT, the policy proceeds are paid to the trust rather than being included in the policy owner’s estate. This can help to reduce estate taxes and ensure that more of the policy proceeds go to the intended beneficiaries.

Reasons for getting an ILIT

Another reason to create an ILIT is to provide for loved ones who may not be capable of managing their own financial affairs. For example, if a parent wants to provide for a special needs child, they might set up an ILIT to hold a life insurance policy for the child’s benefit. The trust can be used to manage the policy proceeds and ensure that they are used for the child’s care and well-being.

Policies use to form an ILIT

There are several types of life insurance policies that can be held in an ILIT, but one type that is particularly well-suited for this purpose is an IUL, or indexed universal life insurance policy.

What is an IUL

An IUL is a type of permanent life insurance that provides both death benefit protection and cash value accumulation. The cash value of an IUL policy is tied to the performance of an external market index, such as the S&P 500. This means that the policy’s cash value can potentially grow at a faster rate than a traditional whole life insurance policy, which has a fixed rate of return.

Benefits of using an IUL

One of the benefits of using an IUL in an ILIT is that the policy’s cash value can be used to pay premiums and keep the policy in force, even if the original policy owner is no longer able to make payments. This can be particularly useful if the policy owner is concerned about the impact of their premature death on their loved ones and wants to ensure that the policy remains in force to provide financial protection.

Flexibility of an IUL

In addition to its potential for cash value growth, an IUL policy also offers the flexibility to adjust the death benefit and premium payments. This can be useful if the policy owner’s circumstances or financial needs change over time.

Bird’s eye view on an ILIT

Overall, an ILIT can be a useful tool for those looking to provide financial protection for their loved ones and reduce the size of their taxable estate. An IUL policy is a particularly good choice for use in an ILIT due to its potential for cash value growth and its flexibility to adjust the death benefit and premium payments.

Seek help

It’s important to note that establishing an ILIT and transferring a life insurance policy to it can be a complex process, and it’s advisable to seek the help of a financial professional and an attorney to ensure that the trust is properly set up and administered.

Conclusion

In conclusion, an ILIT is a legal entity that is used to hold a life insurance policy for the benefit of designated beneficiaries. An IUL policy is a good choice for use in an ILIT due to its potential for cash value growth and its flexibility to adjust the death benefit and premium payments. However, it’s important to seek the help of a financial professional and an attorney to ensure that the trust is properly set up and administered. Contact us today, at Wealth Financial Services & Products at 754-202-2300 or visit our Get a Quote, to set up a consultation.