Estate planning is a pretty straight forward process for most Ohioans. With that being said, there are additional estate planning tools that can help prepare your beneficiaries for the challenges that come with your passing.
One of these tools is an irrevocable life insurance trust, aka ILIT. These trusts are a way to set money aside for your surviving family members that can’t be impacted or diminished by estate taxes.
What is an irrevocable life insurance trust?
An irrevocable life insurance trust allows you to put money from a life insurance policy aside in a trust. Multiple life insurance policies can be connected to one trust and – as long as it’s under $11.7 million – your beneficiaries don’t have to pay any federal estate taxes.
The trust is irrevocable though, meaning it can’t be changed. Therefore, it can take a considerable amount of time and funding to set up correctly.
Even though some things can’t be changed, there is a lot of flexibility with how these trusts can be set up. The person setting up the trust can give very specific instructions for how the money is paid out to beneficiaries, among other things.
Who should consider setting up an irrevocable life insurance trust?
Anyone who expects their estate to be taxed at the federal and state levels should consider setting up an ILIT for their estate. The money set aside in the trust will also be safe from creditors, divorce, and any legal action.
These trusts can also be used to provide money and protection to minor children or people with disabilities. People also set up these trusts as a sort of emergency fund so they can avoid having to sell other assets.
What are the cons?
The downside is that an ILIT is very expensive to set up, so it’s not for everyone. Talk things out with your family and lawyer before deciding to set up this trust.