One principal advantage of insurance trusts is that they permit a greater flexibility in investment and distribution than may be effected under settlement options generally included in the policies themselves. Another advantage is that such trusts, like other gifts of insurance policies, may afford substantial estate tax savings.
Fairfax Virginia Irrevocable Trust Funded by Life Insurance
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Fairfax
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US-01372BG
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FAQ
To remove an existing policy from the estate of an insured, an insured can sign an absolute assignment of ownership form transferring ownership of the policy to an ILIT, and the Trustee can complete the beneficiary designation paperwork required to name the ILIT as the beneficiary of the policy proceeds.
If the grantor were to pass away, the life insurance death benefit is paid out into the trust, at which point the trustee would collect the funds and use them however the grantor requested. Usually, the grantor would set up the trust so that they can provide detailed instructions on how the funds would be used.
The trust, upon the grantor's request, buys a life insurance policy on the life of the grantor. The trust is the owner and the beneficiary of the policy. The proceeds of the life insurance policy will be paid to the trust as beneficiary to be distributed in accordance with the trust agreement.
Trusts are not considered individuals; therefore, life insurance proceeds paid to trusts are generally subjected to estate tax. Also, the proceeds payable to a trust may not qualify for the inheritance tax exemption provided by some states for insurance payable to a named beneficiary.
Method Two: Life Insurance Trusts The second way to transfer a life insurance policy is to create an irrevocable life insurance trust and then hold the policy in trust. Once you transfer ownership of life insurance to the trust, you're no longer the owner, and the proceeds won't be part of your estate.
While there is no legal impediment to a beneficiary also serving as the Trustee of an irrevocable life insurance trust, it is often not a good idea, particularly if there are additional beneficiaries as well. The likelihood of a conflict arising increases exponentially under such circumstances.
The short answer is yes, a beneficiary can also be a trustee of the same trustbut it may not always be wise, and certain guidelines must be followed. Is it a good idea for a beneficiary to be a trustee? There are good reasons for naming a trust beneficiary as trustee.
An ILIT is an irrevocable trust that you create to hold a life insurance policy on your life. It is typically used to benefit your spouse and your children by holding the policy proceeds in trust after your death. The main reason people create an ILIT is for estate tax savings.
While there is no legal impediment to a beneficiary also serving as the Trustee of an irrevocable life insurance trust, it is often not a good idea, particularly if there are additional beneficiaries as well. The likelihood of a conflict arising increases exponentially under such circumstances.
An ILIT (pronounced eye-lit) is a type of trust that it is funded during your lifetime with one or more life insurance policies. It is irrevocable, which means that once you create an ILIT the trust generally cannot be changed or revoked; the terms of the trust agreement are pretty much set in stone.