The concept of irrevocable life insurance can be used in several different ways and manners. Chiefly, it is a great way to ensure that the surviving family members of an insured person remain well-off even after his/her demise. The legal premise of such a trust is that one single trust can potentially hold more than one property and at the same time, the trust in itself is the owner of the property as well as the beneficiary (in some cases).
The legal provisions of the trust cannot be changed and a trustee can ensure that the benefits of the policy are being dispensed properly. The number of beneficiaries and also the insured persons can be one or many. On the whole, it's a great way to safeguard the financial well-being of one's family. The following is a detailed explanation about the actual definition and features of the irrevocable life insurance.
About Irrevocable Life Insurance Trust (ILIT)
An irrevocable life insurance, which is often simply known as a life insurance trust, possesses the following defining features. Take a look...
Independence of Entity
Such a trust is an independent entity which has an owner, who usually pays the premiums of the insurance policies. The trustees or a single trustee acts as the administrator of the trust on the behalf of the owner, especially if the owner is deceased.
The ILIT is the owner and at the same time also the beneficiary of one or several insurance policies. In turn there can be one or more owner of the trust, who conventionally fund/pay the premium of the policies. There are also beneficiaries to the trust.
Memorandum or Constitution
The trust in itself has a specified memorandum or a constitution and it functions specifically in accordance with the rules established therein. The rules in most of the cases are not subject to amendments or any changes thereof. However a trust owner may do so at his or her own discretion. The trustees cannot amend such rules nor can the beneficiaries to the trust.
The trust can have beneficiaries and proceeds from the life insurance policies can be disbursed to these. In usual cases, the beneficiaries become eligible to get the benefit after the death of the owner/owners. In some case, where there are more than one owners the benefits can also be provided after the death of one owner.
Within the memorandum, there are several rules or 'articles of association' which can be laid down by all owners. These rules can act for the benefit of the beneficiaries of the trust, such as a rule to can be put forth that 25% of the earnings can be reinvested, or the proceeds can be enjoyed by the beneficiaries after he or she becomes 21 years of age, etc. Potentially the condition or rule can be anything.
Now these are the general features of the trust. Several additional features and mechanisms can be added which would be based upon the rules of trust. It must be noted that in some cases, the owner of the trust can also be known as a guarantor.
There are several significant advantages of setting up a trust with the help of which you would be able to secure the well-being of your family. Take a look at some further details of such an arrangement:
Entity and Legal Persona
The specialty of such a trust is that it is a completely different legal entity, and is not an attachment to a specified, bank or insurance company. This legal provision makes it quite independent and thereby, the risk of losing money, being prey to fraud, dependency on unnecessary compliance gets completely eliminated. Apart from that the beneficiaries can never be deprived of their benefit, on any possible, rational and legal grounds. In short, it's an almost foolproof provision. All you need is a lawyer and a trustee.
The second most important thing about such a trust is that you can avoid the large estate and income taxes as the tax liability of a person, either the owner or beneficiary gets reduced because of exceptions and deductions.
Ensuring One's Legacy
The trust also ensures that your legacy gets passed on to your rightful heir. In case of disabled heirs, wards or even other relatives or friends, financial well-being can be ensured. The presence of trustees also ensures that the legacy actually gets passed on.
Now all these factors sum up to one important word, 'security', which all of us aim to achieve. There are of course financial benefits, such as you can make rules for reinvestment and even divide the money in proportions among the beneficiaries. The living and death benefits of the several life insurance policies can be stored and even be disbursed properly.