How Our Florida Estate Planning Lawyers Use an ILIT to Keep Life Insurance Proceeds Safe
Irrevocable life insurance trusts (ILIT) can help Florida families protect their estates from uncertainty, whether in the form of unexpected taxes or stringent Medicaid asset tests. DeLoach, Hofstra & Cavonis, P.A., has spent nearly 50 years helping Florida families identify estate planning solutions that align with their circumstances. If you’re making payments toward an expensive life insurance premium, you deserve the peace of mind that comes with knowing that your legacy won’t work against your heirs. Read more to learn about the risks and rewards of irrevocable life insurance trusts, or contact us today to schedule your initial consultation.
An Overview of Florida Irrevocable Life Insurance Trusts
This trust is funded by a life insurance policy. During the process of trust formation, the grantor’s life insurance policies are reconfigured to name their successor trustee as the owner and the beneficiary of each policy’s proceeds. After the grantor passes away, the terms of their trust dictate how these proceeds should be distributed.
Since life insurance trusts are irrevocable, their terms cannot typically be altered. This feature makes ILITs inflexible but can help separate trust assets from estate assets. 
5 Advantages of an Irrevocable Life Insurance Trust
If you expect life insurance to constitute a big part of your legacy, you may need to consider establishing an irrevocable life insurance trust. ILITs can provide significant advantages. Here are some instances when we recommend this option to clients.
1. Minimize Estate Taxes
Florida might not have an estate tax, but the federal government does. Every estate above the federal tax threshold must pay a graduated tax rate, which can range anywhere between 18 percent and 40 percent. High-value life insurance policies can easily push large estates above the current threshold, potentially cutting tens of thousands of dollars from heirs’ expected inheritances. Realistically, most of us do not have over $12 million as part of their estates, but if you have a great deal of assets, the ILIT can help pay estate taxes.
Irrevocable life insurance trusts negate concerns about expensive policies by removing proceeds from grantor’s estate—reducing the estate’s tax basis, and potentially eliminating the risk of taxation altogether.
2. Shield Your Assets from Creditor Claims
During probate, creditors have an opportunity to submit debt claims against the decedent’s estate. However, they must be assessed by the estate’s executor. If the executor determines that a claim is valid, then the debt must be paid using the estate’s assets before heirs can receive their share of an inheritance.
Irrevocable life insurance trusts provide a layer of protection against creditor claims in much the same way that they minimize estate taxes: by removing assets from the decedent’s estate, and relinquishing their control to the trust and trustee of your choice.
3. Take Advantage of Gift Tax Exclusions
Contributions to irrevocable trusts don’t typically qualify for gift tax exclusions. However, some ILITs can be structured to provide beneficiaries with a limited right of immediate withdrawal. So long as beneficiaries regularly exercise this right, the gift tax exclusion can be claimed.
4. Help with Estate Liquidity
If you have a large estate that concentrates on a large, illiquid asset, such as rental property or a small business, your estate may not have a lot of available cash/liquidity to pay estate taxes. An ILIT can help pay estate taxes and avoid financial pressure on your business/other assets.
5. Condition Your Heirs’ Inheritances
You can’t easily change the terms of an irrevocable trust, but you can still set conditions for how trust-managed assets should be used and redistributed. Instead of giving all your heirs a large inheritance upfront, you reserve the right to determine how and when insurance proceeds will be disbursed—preventing young beneficiaries from having too much money at too early an age, or ensuring that much-needed resources are only used for pre-approved purposes.
How a Sun City Center Estate Planning Lawyer Helps with Your ILIT
Before making a big decision about an ILIT, get in touch with professionals at DeLoach, Hofstra & Cavonis, P.A. We’ll help you determine:
- How to establish and fund an ILIT.
- Whether you’ll benefit more from a revocable trust or an irrevocable trust.
- If an ILIT works to your advantage, or if you’re better off sticking with beneficiary designations.
