Considering an ILIT? Now’s the time

Description

Abstract: Life insurance proceeds generally are income-tax-free to beneficiaries, but may be subject to estate taxes. One of the best ways to keep life insurance out of one’s taxable estate is to place the policy in an irrevocable life insurance trust (ILIT). But those who are thinking about setting up an ILIT for an existing policy should consider doing so before the end of the year to take advantage of the record-high gift tax exemption. This article looks at the benefits of an ILIT, and shows how to deal with some significant limitations. A sidebar explains how a recent IRS ruling makes ILITs more attractive by permitting a grantor to build additional flexibility into the trust.