What Is An Irrevocable Life Insurance Trust?
One of the most common misconceptions about life insurance is that it’s a savings account for your family. It is not. Life insurance helps to provide financial protection for your family in case something unexpected happens to you. A key part of this financial protection is that the proceeds are paid directly to your beneficiaries, bypassing probate and avoiding time-consuming court procedures.
An irrevocable trust can be used as a vehicle to provide life insurance proceeds to your beneficiaries outside of probate.
This article explores what an irrevocable life insurance trust is, why you may want one, and how it works.
What is life insurance?
Life insurance is a contract between you and an insurance company.
It pays a future or current sum of money to your beneficiaries if either you die or are diagnosed with a terminal illness. The protection is designed to help them maintain their lifestyle while they’re grieving the loss of you.
What is an irrevocable life insurance trust?
An irrevocable life insurance trust is a type of trust in which the grantor places assets, usually life insurance, into the trust with the intent that those assets will never be used for the grantor’s own benefit. The irrevocable life insurance trust allows you to provide financial protection for your family and bypass probate by providing life insurance proceeds to your beneficiaries outside of probate.
Why you may want an Irrevocable Trust as your vehicle for Estate Planning
For many people, life insurance is a key part of their estate plan. Life insurance can help provide financial protection for your family in case something unexpected happens to you. The problem is that many life insurance policies have small death benefits or high premiums.
In these cases you may want to explore the option of an irrevocable life insurance trust as your vehicle for estate planning. An irrevocable trust can be used as a vehicle to provide life insurance proceeds to your beneficiaries outside of probate.
An irrevocable trust becomes irrevocable when its owner cannot change it any longer and it provides different benefits from a revocable trust. Some key differences between the two are that an irrevocable trust will not include clauses which may allow the owner to amend or revoke the terms of the trust, nor is it possible for funds in an irrevocable trust to be withdrawn by the grantor. An irrevocable life insurance trust is also designed to reduce taxes on life insurance proceeds.
How does an Irrevocable Trust work for estate planning?
An irrevocable life insurance trust is a valuable estate planning tool. It is a way to use life insurance proceeds to provide financial protection for your beneficiaries without the need for probate.
This article will explore what an irrevocable trust is, why it may be beneficial to your estate plan, and how it works.
This post has covered a lot of information, but the most important takeaway is that if you want to protect your assets and ensure that your wishes are respected, an Irrevocable Trust may be the right choice. The last thing you want is for your loved ones to be dealing with the burden of estate taxes, or for your assets to be subject to legal fees and time-consuming court proceedings.
An Irrevocable Trust provides a way for you to keep your assets in the family, without having them suffer from estate taxes or unnecessary legal proceedings. And even if you don’t have a lot of assets at the moment, it’s never too early to plan for the future.