Irrevocable Trust / Irrevocable Life Insurance Trust (ILIT)
Estate planning is about securing the future of your spouse, family, and friends while protecting your assets and legacy. However, taxes can take a heavy toll on your estate, thus preventing needed resources from reaching your intended beneficiaries. Setting up an irrevocable trust can help mitigate the effect that estate and gift taxes have on you and your loved ones.
Hart David Carson can provide much needed assistance when setting up these irrevocable trusts, including irrevocable life insurance trusts (ILIT).Irrevocable Trusts
Simply put, an irrevocable trust is one that cannot be altered or cancelled once it has been finalized. In this sense, any property you transfer into the trust is no longer considered to belong to you, and thus is no longer part of your estate. This ultimately provides the benefit of reducing taxes. Since the property in the trust isn’t technically a part of the estate, estate taxes don’t apply to it.
Irrevocable trusts can be living trusts, which take effect while you are alive, and a testamentary trust, which goes into effect in the event of your death. Irrevocable trusts can take a variety of forms, each of which has its own functional nuances:
- Bypass trusts
- QTIP and QDOT trusts
- Charitable trusts
- Generation skipping trusts
- Grantor-retained interest trusts
- Spendthrift trusts
- Special needs trusts
- Life insurance trusts
For the most part, these trusts exist for the purpose of reducing taxes on your estate, and thus help remove a large burden from you and your beneficiaries. However, in order to function properly, you need to make sure corresponding documents are properly drafted and that all applicable laws and regulations are fully considered. Hart David Carson can help you do just that.Irrevocable Life Insurance Trusts
Many people make the mistake of thinking their life insurance benefits will not be subject to taxes. If the monetary benefits total beyond a certain threshold, however, state and federal governments may come in and take away large portions of funds that would have otherwise gone toward beneficiaries.
To get around this, many private clients opt for an irrevocable life insurance trust, or ILIT. This places the insurance policy into a trust, thus removing it from the total of estate assets. This way, the proceeds from the policy won’t be included as part of the taxable estate, and their amounts can go toward your intended recipients.
However, for the transfer to be federally recognized, it must be made three years prior to the grantor’s death. Otherwise, the proceeds are included with your estate and may be taxed. To avoid this complication, it is best to set up the trust as soon as you obtain a new life insurance policy, which will maximize the chances that it will be officially transferred at least three years prior to your passing.
Setting up an ILIT will also help avoid gift taxes, protect assets, and preserve government benefits for the beneficiaries.Legal Assistance in Setting Up Irrevocable Trusts
Given the numerous regulations and tax laws in place on the ownership and transfer of property, legal expertise is critical to ensuring that irrevocable trusts are set up in a way that benefits you and your beneficiaries while minimizing the effects of taxes. Contact Hart David Carson for the help you need drafting and structuring your trust.