Scranton Irrevocable Life Insurance Trusts & Crummey Trusts Lawyer
An irrevocable life insurance trust, or ILIT, essentially owns your life insurance policy and removes it from your estate. As the word irrevocable is in its official name, it means the trust cannot be revoked, nor can you put the life insurance policy back in your name. You can still control other aspects of the ILIT. This includes selecting beneficiaries and defining the terms of how they receive benefits. You can also choose your intended trustees who will manage your irrevocable life insurance trust. These are complex matters and it is in your best interest to speak with one of our skilled irrevocable life insurance trust & Crummey trust lawyers today.
Reasons to Use an Irrevocable Life Insurance Trust
There are several reasons to consider using an irrevocable life insurance trust. The main reasons include estate tax benefits, asset protection, and a way to ensure a large sum of money is not left to an unsupervised minor or an irresponsible adult.
When properly structured, an irrevocable life insurance trust will not be included in the insured’s gross estate. This differs from when benefits from a life insurance policy are paid out to an individual. In that case, the proceeds are included in the decedent’s taxable estate.
There is also a level of asset protection for the named beneficiaries in the event they are involved in litigation or there is a risk of future litigation. Beneficiaries are not considered to be owners of ILITs, which helps protect them from attachment by creditors in the event of a lawsuit.
If there are beneficiaries who are minor children or adults who have a history of alcohol or drug abuse or difficulty managing finances, setting up an ILIT could be the answer. Set up the trust as the beneficiary and then distribute the assets according to the terms of the trust documents as outlined by the grantor.
Crummey trusts are used as an estate planning tool for people who want to take advantage of the gift tax exclusion when they are transferring assets or money to someone else, while still having the option to include limitations on when and how the recipient can access the money.
Parents often use Crummey trusts as a way to transfer money to their children as lifetime gifts while not paying the gift tax, provided the transfer or “gift” is equal to or less than the allowed annual exclusion amount. For the 2018 tax year, the permitted amount is $15,000. This means a family can keep making a gift of $15,000 annually while putting the money into a protected fund. This fund is what protects it from the IRS’s mandated gift tax.
There is a requirement that the recipient has to have a “present interest” in the gift in order for the exclusion to apply. This means the minor must be granted access immediately to the gift, as long as they are not a minor under 18.
Recipients can make withdrawals within a set amount of time, like 30 or 60 days after the transfer. Anything beyond that point that is held in the trust falls under the stipulated withdrawal set forth by the trust’s grantor.
Retaining a Pennsylvania Estate Planning Attorney
If you have questions on Crummey trusts or irrevocable life insurance trusts, it’s important to speak with a knowledgeable Pennsylvania estate planning attorney who can answer all your questions. Contact Haggerty Hinton & Cosgrove LLP today at 570-344-9845 and let us help with all your estate planning needs.