What Do I Need to Know About an Irrevocable Life Insurance Trust? – Annapolis and Towson Estate Planning

An irrevocable life insurance trust (ILIT) is a trust that can’t be rescinded, amended, or modified after it’s created. ILITs are made with a life insurance policy as the asset owned by the trust. Once the grantor places property or life insurance death benefits into the trust, she can’t alter the terms of the trust or reclaim any of the properties held by it.

As an alternative to designating an individual beneficiary, ILITs offer several legal and financial advantages to heirs. This includes favorable tax treatment, asset protection, and the assurance that the benefits will be used in a manner concurrent with the benefactor’s wishes.

Investopedia’s recent article, “When Is It a Good Idea to Use ILIT Trust?” says that there are several advantages to ILITs, including state tax considerations, the protection of fiscally-careless beneficiaries from squandering their payouts and the prevention of courts and creditors from accessing the assets.

An ILIT is often used to set aside assets for certain purposes, like paying estate taxes, because these assets themselves aren’t taxable. To do this, the selected assets must be moved into the life insurance trust at least three years before they’re used. If you use a qualified estate planning attorney to create this, the death benefits paid to the ILIT won’t be included in the gross estate of the insured. This is different than when life insurance death benefits are paid to an individual because the proceeds are included in the taxable estate of the decedent.

The ILIT also has asset protection for the beneficiaries if they are involved in a lawsuit. That’s because ILITs aren’t considered to be owned by the beneficiaries. This makes it hard for courts to connect the assets to the beneficiary, making them nearly impossible for creditors to access.

There are some drawbacks to using an ILIT, so carefully consider the pros and cons of creating one. Changes to an ILIT can only be made by the beneficiaries. As a result, the benefactor loses control of the assets prior to death.  ILIT assets also are not taxed as part of the estate, but they are taxed as part of the beneficiaries’ estates, leaving a bigger tax burden to their descendants.

Preparing an ILIT is a sophisticated matter with strict guidelines that must be followed to ensure that it conforms with IRS guidelines. Talk with an experienced estate planning attorney to be sure that it is prepared properly, and that it aligns with your overall estate plan.

Reference: Investopedia (August 5, 2019) “When Is It a Good Idea to Use ILIT Trust?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

For Immediate Release

Contact: Jane Frankel Sims

410-828-7775

Contact: Frank Campbell

410-263-1667

Sims & Campbell Estates and Trusts

Frankel Sims Law and Holden & Campbell
Merge to Form Sims & Campbell

Firm will offer comprehensive Trusts & Estates services through offices in Towson and Annapolis

TOWSON, Md. (April 26,2019)  Frankel Sims Law and Holden & Campbell have jointly announced the merger of their firms to create a boutique Trusts & Estates law firm providing comprehensive services in the fields of Estate Planning, Estate Administration, Trust Administration and Charitable Giving. The combined firm will be named Sims & Campbell and have offices in Towson, Md. and Annapolis, Md.  Jane Frankel Sims and Frank Campbell will lead and hold equal ownership stakes in the firm.

Sims & Campbell will have 9 attorneys and 15 legal professionals that handle every facet of estate and wealth transfer planning, including wills, revocable living trusts, irrevocable trusts, estate and gift tax advice, and charitable giving strategies.  The firm will focus solely on Trusts & Estates but will serve a wide range of clients, from young families with modest resources to ultra-high net worth individuals.  This allows clients to remain with the firm as their level of wealth and the complexity of related estate and tax implications change over time. 

“By joining forces, we have expanded our footprint to conveniently serve clients in Maryland, D.C. and Virginia” said Jane Frankel Sims.  We are seeing some of the greatest wealth transfer in our country’s history, and we want to continue to be on the leading edge of helping our clients maintain and enhance their family’s wealth.  In addition, we aim to serve our clients for years to come, and the new firm structure will allow Sims & Campbell to thrive even after Frank and I have retired.”    

“Jane and I have always admired each other’s firms and recognized the need to provide even greater depth and breadth of focused expertise to help families amass and protect their wealth from generation to generation,” said Frank Campbell.  “Now we have even greater capabilities to make a real difference for our clients.” 

The Sims & Campbell Towson office is located at 500 York Road, on the corner of York Road and Pennsylvania Avenue in the heart of Towson.  The Annapolis office is currently located at 716 Melvin Avenue, and is moving to 181 Truman Parkway in August, 2019.  For more information, visit www.simscampbell.law.