An Irrevocable Life Insurance Trusts (ILIT) is the perfect estate planning tool and an ideal way to own life insurance.
Life insurance passes to the named beneficiaries Income Tax Free but is not Estate Tax Free if it is owned by the insured. Some inexperienced insurance agents name the spouse as the owner so the death benefit is not counted in the insured’s estate. This is meaningless because the estate tax isn’t due until the death of the second spouse and with the unlimited marital deduction no tax is due on the first spouse’s death. Additionally, this strategy fairs to address the possibility that both spouses may die at the same time in an accident.
The ILIT takes the death benefit out of the estate and allows for income and estate tax-free transfer. With the Crummey provision the insured can provide the necessary funds to pay the premium.
Life insurance is the greatest estate planning tool to pass wealth from one generation to the other, as long as it is owned by an ILIT.