Sure, there is some extra work involved to set up an Irrevocable Life Insurance Trust (ILIT):
- The attorney fees
- Finding a trustworthy and reliable trustee
- Establishing a bank account for the trust
- Premiums that are paid each year, must be paid out of that trust by the trustee
- The increased Unified Credit Exemption means you need to have a very high net worth to make the trust worthwhile.
But, if you are in the right situation, an ILIT owning your life insurance can be very powerful.
Life insurance is usually tax free to beneficiaries, but the ILIT can also make it free from estate taxes, when set up properly. Without the ILIT, the life insurance would be owned personally, and therefore included in the taxable estate thereby adding to the estate taxes due.
The ILIT can also be used for other estate planning purposes. The trust can retain the life insurance proceeds and manage it on behalf of the beneficiaries. It can also be used as a family bank; providing a source of funds for generations. Lastly, the cash inside the ILIT can protect against divorce and creditors for the beneficiaries.
Speak to your estate planning attorney for more information about ILIT specifics.