Irrevocable Life Insurance Trusts (ILIT)

Irrevocable Life Insurance Trusts


  • Exempt From Estate Taxes
  • Exempt From Estate Debt
  • Quick Source of Funds
  • Bypasses Probate

A life insurance policy is one common way that estate planners leave their family a source of income after their death. This policy creates fast money that your loved ones can pull out and use even before the probate process has begun. You can ensure your family does not have to use your life insurance policy to pay off estate debts by naming a beneficiary. This is helpful for insolvent estates where estate debts outweigh estate holdings.

When is Your Life Insurance Policy Safe from Estate Debt?

Name a Designated Beneficiary

When you create a life insurance policy, the most important part is naming your beneficiary. You can do so by filling out a beneficiary designation form provided by your policy holder. A designated beneficiary is the person who will inherit the policy funds upon your death. He or she will need to provide a certified copy of your death certificate to do so.

Update Your Designated Beneficiary

If your life insurance policy beneficiary should pass away before you do, it is vital that you name a new beneficiary as soon as possible. You should also name a back-up beneficiary in the event that your beneficiary dies at the same time as you.

To update your policy you must do so through your life insurance policy holder. They will not recognize a beneficiary change via your Last Will and Testament or Revocable Living Trust.

If You Don't Name a Beneficiary

If you pass away without assigning a life insurance policy beneficiary or if your beneficiary has pre-deceased you, then your life insurance policy will become part of your estate and be included in the probate process. In this case, it can be used to cover estate debts and in the event your estate owes more than it is worth, the entire life insurance policy will be used to pay debts and your family members will be left without any extra funds to help pay living expenses as you had intended.

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