An irrevocable life insurance trust is a trust created to own life insurance outside your taxable estate. You create the trust, but the trust owns the policy. The trustee manages the policy according to the trust agreement and ultimately receives the insurance proceeds.
Because the trust owns the policy, you generally give up the ability to control it as you would a personally owned policy. This type of trust can provide a structured way to manage insurance proceeds for your beneficiaries.
Nelson Elder Care Law has served hundreds of families in Georgia and assisted them with their estate planning goals. Schedule your free Legacy Planning Meeting today, where you can find out more about how our estate planning lawyers in Woodstock can help.
Why Would You Need an Irrevocable Life Insurance Trust?
Georgia does not currently impose a state estate tax or inheritance tax. However, that does not eliminate federal estate-tax considerations for Georgia residents, particularly when a person’s estate is substantial.
A properly structured irrevocable life insurance trust may keep life insurance proceeds outside the insured’s federal gross estate. Whether that result applies depends on how the trust is established and whether the insured retains ownership rights over the policy.
The potential benefit depends on your circumstances. Smaller estates below the federal exemption gain little from this trust. Nelson Elder Care Law assesses whether the arrangement fits a client’s estate and may offer alternatives.
Secure Your Legacy Today! Schedule a Free Elder Care Consultation with Our Experienced Georgia Attorneys.
Who Owns the Life Insurance Policy?The trust should own the policy rather than the insured person. That arrangement can help prevent the proceeds from being included in the insured’s estate because of retained ownership rights.
Federal law can include life insurance proceeds in the gross estate when the insured possesses incidents of ownership at death. Those rights can include meaningful control over the policy. That is why you cannot treat this as though it were simply another beneficiary designation.
The trust must actually hold the appropriate ownership interest, and you must avoid retaining powers that undermine the intended tax treatment. At Nelson Elder Care Law, our estate planning lawyers can help you understand the legal intricacies.
Take the first step toward peace of mind for you and your family. Call Us Today
What is the Three-Year Rule?
The three-year rule can create a significant issue when you already own a life insurance policy and later transfer it to a trust. Certain transfers of life insurance made within three years of death can cause the policy proceeds to be included in the insured’s gross estate.
This means transferring an existing policy to an irrevocable life insurance trust does not necessarily produce the same result as having the trust acquire a new policy from the beginning.
If you are considering an irrevocable life insurance trust because of an existing policy, Nelson Elder Care Law suggests you review the policy and ownership history before recommending a transfer.
How are Premiums Paid?
An irrevocable life insurance trust needs money to pay the insurance premiums. You may make gifts to the trust, and the trustee can then use trust funds to pay the premiums under the terms of the trust.
These contributions may trigger gift taxes, so it’s important to manage premium payments correctly. Proper beneficiary withdrawal rights could make some contributions qualify for the annual gift tax exclusion.
The trustee must follow the trust’s procedures when handling contributions and premium payments. Nelson Elder Care Law recommends consulting with an attorney whenever you aren’t sure how your actions will impact the trust.
What are Crummey Withdrawal Rights?
Crummey withdrawal rights generally give certain trust beneficiaries a temporary right to withdraw contributions made to the trust. Properly structured withdrawal rights can help a contribution qualify for the federal annual gift tax exclusion.
The trustee is responsible for sending the required notices and following the terms of the trust.
When a trust is funded over many years, the trustee should maintain careful records. Nelson Elder Care Law can recommend alternatives to an irrevocable life insurance trust.
What is the Absolute Protection Trust™
If an irrevocable life insurance trust seems over complex, there are other options. The Absolute Protection Trust™ is an estate planning tool offered by Nelson Elder Care Law to help Georgia families protect assets while maintaining greater flexibility than a traditional irrevocable trust.
Unlike a conventional irrevocable trust, the Absolute Protection Trust™ includes a Trust Protector™ feature that can allow certain changes as circumstances and planning goals evolve. This may include removing or replacing a trustee and modifying trust provisions.
Though the purpose is different from an irrevocable life insurance trust, assets held in the trust may also avoid probate and may provide additional protection from Medicaid estate recovery. Nelson Elder Care Law also assists with funding the trust through its Trust Activation process.
Get Help With Estate Planning In Georgia
An irrevocable life insurance trust is a legal arrangement that owns a life insurance policy and keeps the death benefit outside the policyholder’s taxable estate. It can solve important estate-planning problems, but it also creates challenges.
You may give up control of an existing policy, face the three-year rule when transferring certain policies, and need to maintain the trust properly over time.
For over a decade, Nelson Elder Care Law has helped Georgia families understand trusts and other estate planning strategies. Book your free Legacy Planning Meeting today.