Contact Us for a Free Consultation 714-374-2244

The Latest from Susan Katzen

How an ILIT Can Help Protect Your Family's Wealth

Posted by Susan A. Katzen | Sep 07, 2024 | 0 Comments

As a Newport Beach inheritance lawyer, I often recommend Irrevocable Life Insurance Trusts (ILITs) to clients looking to protect their family's wealth. Life insurance is a powerful estate planning tool, but without proper planning, it can become vulnerable to creditors or unnecessarily inflate your taxable estate. Let's explore how an ILIT can help safeguard your family's financial future.

The Power of Life Insurance in Estate Planning

Life insurance plays a crucial role in many estate plans. It offers several advantages, providing a tax-free death benefit to beneficiaries, bypassing the probate process, and offering quick liquidity to settle estate debts and taxes. However, if you own your life insurance policy, its value becomes part of your taxable estate. This could potentially lead to hefty estate taxes, reducing the amount your beneficiaries receive.

Understanding Irrevocable Life Insurance Trusts

An ILIT is a type of trust specifically designed to own and control your life insurance policy. As the name suggests, it's irrevocable, meaning once it's set up, you can't change or dissolve it without the beneficiaries' permission. This permanence is key to its effectiveness in estate planning.

The Advantages of an ILIT

As a Newport Beach inheritance lawyer, I've seen ILITs provide numerous benefits. By removing the life insurance policy from your estate, an ILIT can significantly reduce your estate tax liability. It also offers robust asset protection, shielding the life insurance proceeds from creditors, both yours and your beneficiaries'. Furthermore, an ILIT gives you control over how and when the proceeds are distributed to beneficiaries. For those thinking long-term, an ILIT can be structured to benefit multiple generations while minimizing transfer taxes.

How an ILIT Operates

The process of setting up and maintaining an ILIT is straightforward but requires attention to detail. You begin by creating the trust and naming a trustee. Next, you transfer an existing policy into the trust or have the trust purchase a new policy. To keep the policy active, you make cash gifts to the trust to cover premium payments. Upon your death, the trustee collects the death benefit and distributes it according to the trust's terms.

Potential Drawbacks to Consider

While ILITs offer significant benefits, they're not without drawbacks. The most significant is the loss of control - once the trust is created, you can't change it or access the cash value of the policy. ILITs also require careful planning and ongoing management to ensure they function as intended. Additionally, funding the trust may have gift tax implications that need to be carefully navigated.

Is an ILIT the Right Choice for You?

Whether an ILIT is appropriate for your situation depends on various factors. The size of your estate, your family's financial needs, your long-term estate planning goals, and your comfort with irrevocable arrangements all play a role in this decision. As a Newport Beach inheritance lawyer, I always recommend a thorough evaluation of your unique circumstances before deciding on any estate planning strategy.

The Importance of Professional Guidance

Creating and managing an ILIT requires knowledge in both estate law and tax regulations. If you're considering an ILIT as part of your estate plan, it's crucial to work with an Newport Beach inheritance lawyer who can guide you through the process and ensure your trust is structured correctly.

Remember, proper estate planning is about more than just passing on wealth – it's about securing your family's financial future and leaving a lasting legacy. An ILIT can be a powerful tool in achieving these goals, but it's just one of many strategies available.

If you're in Newport Beach and want to explore whether an ILIT is right for your estate plan, don't hesitate to reach out to our firm. We can help you navigate the complexities of estate planning and create a strategy tailored to your unique needs and goals. Simply contact us at 714-374-2244 to schedule an appointment. 

About the Author

Susan A. Katzen

"I firmly believe our clients should be treated the way I would want my own family members to be treated. As a result, not only have I put together a compassionate and highly skilled team of people, but together we have served families from the grandparents down to the grandchildren. My staff and...

Comments

There are no comments for this post. Be the first and Add your Comment below.

Leave a Comment

Contact Us Today

The Law Office of Susan A. Katzen is committed to answering your questions about Estate Planning, Special Needs Planning, Settlement Planning, Trust Administration, Probate, and Conservatorships issues in Newport Beach, California.

We offer a free consultation for qualified clients and we'll gladly discuss your case with you at your convenience. Contact us today to schedule an appointment.

Office Location

The Law Office of Susan A. Katzen
1301 Dove Street, Suite 750
Newport Beach, CA 92660
714-374-2244
949-732-3524 (fax)

Menu