NEW YORK, NY / ACCESSWIRE / April 30, 2024 / Irrevocable trusts allow you to remove specific assets from your taxable estate and place them in a trust. Once an irrevocable trust is created, you can't change or cancel it.

An irrevocable life insurance trust, or ILIT, is a type of irrevocable trust that can let you reduce your taxable estate with a life insurance policy.

Transferring your life insurance policy to an ILIT can offer many benefits that suit various estate planning goals.

This informative article will provide an overview of how ILITs work and explore their benefits and potential uses.

How does an Irrevocable Life Insurance Trust work?

ILITs let you transfer the life insurance policy outside your estate so that the death benefit can be distributed to your beneficiaries without incurring estate taxes.

To set up an ILIT, you'll have to designate a trustee to manage the trust for you. The trust document will be drafted to outline the provisions of the trust, the beneficiaries, the purpose, instructions and more. It is recommended to work with an estate planning attorney to draft the ILIT.

Next, you'll place the life insurance policy inside the trust and gift the trust money or assets to pay policy premiums. Your trustee then manages the trust, which includes paying premiums and filing assets.

The death benefit is distributed to the trust if you pass away during the policy term. The trustee then pays these funds to beneficiaries as the ILIT designates.

The benefits and uses of an Irrevocable Life Insurance Trust

Here are some ways you can use an ILIT to benefit yourself and your loved ones financially:

Minimize estate taxes

Life insurance death benefits are exempt from income taxes but not always from estate taxes. Placing the policy in a properly drafted ILIT helps you potentially minimize estate taxes.

Increase distribution control

Beneficiaries tend to have the most control over life insurance death benefit use once you pass away. You also only have a few options for distributing the death benefit.

An ILIT gives you more control and flexibility. For example, you can designate that certain conditions be met for asset distribution, such as the beneficiary reaching a certain age, buying a house, or starting a family.

Another example might be distributing only for certain purposes, like college costs or medical care.

Furthermore, an ILIT can let you choose how much and how often assets are distributed. For instance, particularly if you have a large death benefit, you can split the death benefit into weekly, monthly, or annual distributions to offer your beneficiaries a steady and manageable income stream.

Protect your assets and privacy

Life insurance policies may be vulnerable to seizure if you or your beneficiaries file for bankruptcy or are sued.

However, a properly structured ILIT can protect your life insurance policy because the trust will own the policy, not you.

Similarly, trusts are private documents and, unlike wills, do not become public records when you pass away. This can help protect the privacy of you and your loved ones and shield some of your assets from the public eye.

Provide life insurance for minors

Life insurance policies generally don't allow you to name minors as beneficiaries, but trusts can provide life insurance benefits for minors, affording them financial protection when you are gone.

Consider an Irrevocable Life Insurance Trust For estate planning

ILITs let you transfer your life insurance policy to a separate legal entity to enhance your estate planning. This can potentially minimize estate and gift taxes, allowing your beneficiaries to receive more of your assets.

Remember that you cannot alter or change your ILIT once you create it. Work with a qualified estate planning attorney to determine who you want to be your beneficiaries and help properly structure the ILIT to meet all of your wishes.

Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent. 

 Coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, coverage is underwritten by American Family Life Assurance Company of New York.

68000 series: In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. In New York, NY68100-NY68400. B61000 series: In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC18B61JWO & ICC18B61JTO. In Virginia, Policies ICC0965JTO & ICC0965JWO. B60000 series: In Arkansas, Idaho, Oklahoma, Pennsylvania, Texas, & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Q60000 series: Whole: In Arkansas, Policy Q60100CAR. In Delaware, Policy Q60200M. In Idaho Policy Q60100CID. In Oklahoma, Policy Q60100COK. In Oregon, Policy Q60100COR. In Texas, Policy Q60100CTX. Q60000 series: Term: In Delaware, Policies Q60200C. In Arkansas, Idaho, Oklahoma, Oregon, Texas, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C.

This is a brief product overview only. Coverage may not be available in all states, including but not limited to DE, ID, NJ, NM, NY or VA. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations and exclusions. For complete details, including availability and costs, please contact your local Aflac agent.

Aflac does not offer Universal or Variable Universal life insurance.

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Senior PR & Corporate Communications contact: Angie Blackmar, 706-392-20973 or ABlackmar2@aflac.com

SOURCE: Aflac