Irrevocable Life Insurance Trust

In: Business and Management

Submitted By xiaokefei
Words 487
Pages 2
Memorandum
To: Joseph, Owner
From: Associate
CC:
Date: April 24, 2012
Subject: Irrevocable Life Insurance Trust
The purpose of this memo is to provide you information regarding life insurance is included in your estate, how irrevocable life insurance trust (ILIT) would keep your assets out of your estate, and how your powers have to be restricted in order for this to work.
According to Federal Estate and Gift Tax Section 2042, the proceeds of insurance policies on a decedent’s life are to be included in the insured’s gross estate if they are (1) receivable by the executor or (2) receivable by other beneficiaries and the decedent had any incidents of ownership in the policy at death. On the other hand, if the purchaser retains ownership of the policy and dies before the insured, his ownership interest must be included in his gross estate under Section 2033. Therefore, life insurance policy is includable in someone’s gross estate.
Although life insurance policy is included in your gross estate for estate tax purpose, Irrevocable Life Insurance Trust can keep your assets out of your estate because of no incident of ownership of life insurance policy that allow the proceeds of the policy to escape estate tax when you die.
Irrevocable Life Insurance Trust is an irrevocable trust holding life insurance to transfer wealth without having to pay estate taxes on the transfer. Normally, an ILIT is considered to have no owner since you have rid of all incidents of ownership. At time same time, you do not have the power to change or cancel the life insurance policy. Once you placed in ILIT, trustee or insurance company will administer the property and executive the death benefit to named beneficiaries. Since new federal rule has set up to $ 5 million can be passed from an individual estate without estate tax, Mr. Wireman should make at least $2 million ILIT in…...

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