The Irrevocable Life Insurance Trust (ILIT) is a tool that allows the creator to reduce the size of his or her estate, create liquidity to pay any taxes and expenses that will be due at the time of death and provide for the remainder of the payout of the life insurance policy to be distributed as the creator chooses.
An ILIT requires annual maintenance, such as sending out withdrawal notices to the beneficiaries and making premium payments from the ILIT rather than from the individual. If the requirements are not followed, there is a risk that the IRS will not respect the transfers as present gifts and the payout at the death of the insured will be included in his or her estate at death. It is imperative that an ILIT be established properly and the communication between the attorney and client continue through the life of the trust in order for the trust to achieve its purpose.
For a detailed discussion on estate planning with life insurance, please see the May 2012 Newsletter.