Does an Ilit need to file a tax return?
Most ILITs do not have taxable income and therefore do not require an income tax return. In terms of gift tax reporting, if you transferred an existing life insurance policy to the ILIT, a gift tax return may be required to inform the IRS of the transfer (gift) of the life insurance policy to the ILIT.
What is the purpose of an Ilit?
An irrevocable life insurance trust (ILIT) is created to own and control a term or permanent life insurance policy or policies while the insured is alive. ILITs are also used to manage and distribute the proceeds that are paid out upon the insured’s death.
Can an Ilit have multiple beneficiaries?
However, now is a good time for owners and investors to refamiliarize themselves with this trusty estate planning tool. Simply stated, an ILIT is a type of irrevocable trust. A trust may be established by one or more persons (each, a “settlor” or “trustmaker”) as a revocable trust or an irrevocable trust.
How is an Ilit taxed?
The buildup of cash value within a policy owned by the trustee of an ILIT is wholly free from income tax. Even more important, the life insurance proceeds ultimately received by the trustee of the ILIT are not subject to the federal income tax.
Can a spouse be the trustee of an Ilit?
As mentioned above, a surviving spouse can serve as trustee of the ILIT after the insured/Grantor’s death and still receive income from the trust and also monies for his or her health, education, and support.
What is an irrevocable beneficiary?
A beneficiary is the person who receives the death benefit from a life insurance policy after the insured passes on. An irrevocable beneficiary is a person who cannot be easily changed or removed from your life insurance policy.
What is a irrevocable trust?
An irrevocable trust is simply a kind of trust that cannot be changed or canceled after the document has been signed. This sets it apart from a revocable trust, which can be altered or terminated and only becomes irrevocable when the trust maker, or grantor, dies.
Can an Ilit be terminated?
Termination. An irrevocable trust generally can’t be terminated. But under certain circumstances, an ILIT can be terminated with the assistance of an attorney. Some states require judicial intervention to terminate an ILIT.
Can you be trustee and beneficiary of irrevocable trust?
The simple answer is yes, a Trustee can also be a Trust beneficiary. In fact, a majority of Trusts have a Trustee who is also a Trust beneficiary. Being a Trustee and beneficiary can be problematic, however, because the Trustee should still comply with the duties and responsibilities of a Trustee.