Life Insurance Planning

Life Insurance Planning in New York

Serving Clients in New York City and the New York Metropolitan Area


Irrevocable Life Insurance Trusts (ILIT)

Life insurance is a vehicle that many people use to preserve wealth and provide financial security for their families.

Favorable tax treatment makes life insurance payouts exempt from income taxes; however, proceeds from insurance can be subject to estate tax. If the policyholder dies and the policy is in his or her name, the value of the death benefit will be included in the deceased person’s taxable estate. For this reason, many people choose to transfer their life insurance policies to irrevocable life insurance trusts (ILIT) while the cash value is low. This will successfully remove that asset from their estate to avoid the value being taxed as part of the estate.

When properly drafted, an ILIT can remove life insurance policies from the estate, since the trust becomes the owner of the policies, not the individual. When the person for whom the policy is written dies, the trust receives the benefit and disburses it according to the rules of the trust (which was drafted according to the decedent’s instructions and wishes), thus avoiding probate and avoiding the estate tax and fulfilling the decedent’s final wishes.

An ILIT will also allow you to make gifts over a period of time, and can be structured to carry out your wishes after your death. As with all trusts, you designate one or more trustees who are obligated to follow your instructions. An additional benefit of an ILIT is the minimal costs of creating and maintaining this kind of trust. Most importantly, the trust will significantly enhance your estate plan and benefit your heirs.