In any ILIT structure, a Trustee is selected. The trustee is the person or institution that is designated to manage and operate the trust. Often, the trustee is a family member or friend of the person creating the trust (the “Grantor”) with little or no experience in being a trustee.
How does an Ilit trust work?
An irrevocable life insurance trust (ILIT) is created to own and control a term or permanent life insurance policy or policies while the insured is alive, as well as to manage and distribute the proceeds that are paid out upon the insured’s death.
Can the beneficiary of an Ilit be the trustee?
From a legal perspective, there is no impediment to a beneficiary of an ILIT also being the Trustee of the trust. The Trustee of a trust has many duties and responsibilities; however, in general, a Trustee is responsible for managing trust assets and administering the trust using the terms created by the Settlor.
Is an Ilit considered a grantor trust?
Usually, yes. Most ILITs are grantor trusts since these trust instruments typically provide that income may be applied toward the payment of premiums on policies insuring the grantor’s life (or the grantor’s spouse’s life).
Who should be trustee of an Ilit?
2. Who can serve as an ILIT trustee? The trustee of an ILIT can generally be anyone other than the insured, although naming an “independent trustee” may offer greater flexibility for estate planning.
Are Ilit distributions taxable?
If an ILIT is created to own the life insurance policy and the proceeds of the life insurance policy are payable to the trustee of the ILIT upon the insured’s death, then the proceeds are not included in the insured’s estate and, therefore, are not taxable for federal estate tax purposes.
Who Cannot be the trustee of a Ilit?
The creator of the ILIT cannot also serve as the trustee because this would result in the creator of the trust having an incident of ownership in the life insurance policy and the policy proceeds would be taxed in the estate of the creator of the trust upon his or her death.
Can an Ilit hold other assets?
An unfunded ILIT is one that holds a life insurance policy only, and does not hold any other assets. The trust can receive other assets at your death along with the insurance proceeds, such as assets poured over from your will, or death benefits paid by your employer or employer benefit plan.
Can a spouse be trustee of an Ilit?
You (and often your spouse) cannot serve as trustee of the ILIT. The trustee can be almost anyone else, such as a parent, a sibling, an adult child, or even a bank. You cannot be a beneficiary of the trust, but your spouse and children can be (and usually are) beneficiaries.
What is a power of appointment in a trust?
A power of appointment or power of appointment trust is a legally binding provision contained in a trust which gives a surviving spouse or other beneficiary the authority to change the ultimate beneficiaries of a trust.
What is an example of a power of appointment?
For example, if a married couple’s trust contains power of appointment language, then after one spouse passes away the surviving spouse has authority to change the trust, beneficiaries, and heirs named in the trust, consistent with the specific terms contained in that power of appointment. When is a power of appointment a good idea?
What is an irrevocable life insurance trust (Ilit)?
An irrevocable life insurance trust (ILIT) is an advanced estate planning vehicle intended to hold life insurance policies. The main goals of an ILIT are to provide liquidity to the insured’s estate on the death of the insured and/or to pass death benefit proceeds to the insured’s beneficiaries free of federal estate taxes.
What is a limited power of appointment in a will?
What is a limited power of appointment or special power of appointment? A limited power of appointment, otherwise known as a special power of appointment, gives a surviving spouse or other beneficiary the ability to give the decedent’s assets to a select group of people specifically identified in the power of attorney.
