What is a Life Insurance Trust?
Life insurance owned by a decedent on their life is included in the valuation of their estate for Tennessee inheritance tax and federal estate tax purposes. A life-insurance policy owned by certain type of trust called an irrevocable life insurance trust (“ILIT”) escapes Tennessee inheritance tax and federal estate tax inclusion.
Irrevocable Life Insurance Trusts
An irrevocable life insurance trust owns the policies and receives the death proceeds for the benefit of the spouse, children and other family members. Besides not being amendable, another major drawback to an irrevocable life insurance trust is that the settlor of the trust may not serve as trustee.
When setting up an irrevocable life insurance trust make sure that the terms qualify for exclusion from Tennessee inheritance tax and federal estate tax purposes. It is also important to make sure that subsequent gifts made to the trust by the settlor to pay future insurance premiums qualify for the annual gift-exclusion amount and are not subject to the federal gift tax.
While an insurance trust is not right for everyone, in certain situations an irrevocable life insurance trust properly drafted and administered can save significant amounts in Tennessee inheritance and federal estate tax. If you need assistance you can find more information about Nashville Estate Planning here or you can ask your questions directly using our contact form.