Georgia Irrevocable Trust Attorneys

An ILIT is designed specifically to own and manage life insurance policies, while a revocable living trust manages a broader range of assets. Unlike a revocable trust, an ILIT is irrevocable once it is created, meaning the grantor cannot change or revoke it without taking complex legal steps.

This irrevocability allows the ILIT to remove the life insurance proceeds from the grantor’s taxable estate, providing potential estate tax benefits. In contrast, revocable trusts offer flexibility and control but generally do not provide estate tax advantages for life insurance proceeds.

The trustee of an ILIT should be someone trustworthy, financially responsible, and familiar with fiduciary duties. Often, individuals select a family member, a close friend, or a professional fiduciary such as a bank or trust company. The trustee manages the life insurance policy, ensures timely payment of premiums, and distributes proceeds according to the trust terms. Because the ILIT is irrevocable, the trustee has full control over the trust once established.

No, an ILIT is generally irrevocable, meaning it cannot be easily changed or revoked once established. This is a key feature that allows the trust to remove life insurance proceeds from the grantor’s taxable estate. Any modifications would typically require the consent of all beneficiaries and may involve complex legal procedures. Some advanced planning strategies, such as creating a successor ILIT or using certain powers of appointment, can allow limited flexibility, but these require careful legal guidance.

Most life insurance policies can be placed in an ILIT, including term, whole life, universal life, and variable life policies. The trust must be the owner and beneficiary of the policy to achieve the intended estate tax benefits. The choice of policy depends on the grantor’s objectives, such as the amount of coverage needed, premium affordability, and whether the policy accumulates cash value.

Term policies may offer lower initial costs, while permanent policies provide long-term coverage and offer the potential for cash accumulation.

An ILIT protects life insurance proceeds because the trust owns the policy, not the grantor. Since the grantor no longer has direct control, the proceeds are generally shielded from the creditors of both the grantor and the beneficiaries.

Properly drafted ILITs include spendthrift provisions, which further restrict beneficiaries from assigning or pledging trust assets. These protections ensure that life insurance funds are distributed according to the trust’s terms, providing financial security to intended beneficiaries.

Yes, an ILIT can be structured to provide for minor children or beneficiaries with special needs. The trustee can hold life insurance proceeds and distribute funds according to the child’s age, milestones, or specific needs.

For special needs beneficiaries, the trust can be designed to supplement government benefits without jeopardizing eligibility. This ensures financial support while protecting assets and maintaining eligibility for programs such as Medicaid or Supplemental Security Income.

A Crummey Notice is a written notification sent to beneficiaries of an ILIT when a gift is made to the trust. It informs beneficiaries of their right to withdraw contributions for a limited period, usually 30 days.

This step is necessary to qualify contributions as present interest gifts, which are eligible for the annual gift tax exclusion under IRS rules. Without the Crummey Notice, contributions could be considered future interest gifts, potentially triggering gift taxes.

When contributions are made to an ILIT to pay life insurance premiums, they are considered gifts to the trust’s beneficiaries. With proper structuring, such as issuing Crummey Notices, these gifts qualify for the annual gift tax exclusion, reducing or eliminating out-of-pocket gift tax liability. Because the trust is irrevocable, the grantor surrenders control over the contributions, which may further reduce taxable estate exposure.

If premiums are not paid, the life insurance policy owned by the ILIT may lapse, terminating coverage. Without an active policy, the trust cannot receive the death benefit upon the insured’s passing, defeating the purpose of the ILIT. To prevent this, trustees must ensure timely payment of premiums from trust assets. Some ILITs include provisions for funding strategies or guarantor arrangements to cover premiums.

Yes, an ILIT can own multiple life insurance policies on one or more insured individuals. This can provide flexibility in coverage, diversify risk, or fund different estate planning objectives. Each policy must be owned by the trust and properly structured to meet IRS and estate tax requirements. Trustees must manage each policy carefully, ensuring premiums are paid and policies remain in force.