Trusts are an efficient way to transfer assets outside of probate, making many of them favorable tax strategies. Irrevocable life insurance trusts are no exception. These trusts also shield assets meant for your beneficiaries from creditors and provide for the care of special needs loved ones without disturbing their eligibility for Social Security disability benefits.
When you are amassing wealth, it is crucial to ensure that it is preserved for your loved ones. With the help of a tenacious trusts attorney from Tully Law Group, PC, you could see if irrevocable life insurance trusts in Riverhead are right for you.
Irrevocable trusts are more than repositories for a trustor’s assets. Instead, the trust assumes ownership of them, which separates the grantor’s assets from the taxable estate. The grantor cannot serve as trustee, so they generally appoint a trusted friend or loved one, although professional independent trustees, including our law firm, can serve as trustees. The grantor cannot add or subtract assets or beneficiaries.
ILITs are established to purchase life insurance policies on grantors. The grantor is the person who establishes and funds the ILIT, the trustee manages it and pays the annual insurance premiums, and the beneficiary or beneficiaries receive the trust’s assets when the grantor dies. The Riverhead trustee cannot modify the irrevocable life insurance trust unless the beneficiaries agree to it. However, the trustee ensures the life insurance policy premium is paid regularly, keeping the policy active, until the grantor dies. At that time, the death benefit is paid to the trust, which then distributes the proceeds to the named beneficiaries. Our lawyers guide clients like they are our family members. We advocate for the value of legal tools that preserve hard-earned wealth to give loved ones a stable future.
One technique for paying the annual life insurance premium due on an ILIT and funding the trust is to use the annual gift tax exclusion available for each beneficiary at the federal level, which sits at $18,000 for 2024. As the federal lifetime gift exemption stands at $13.61 million—and the lower New York State limit is currently $6.94 million—the trust can receive the annual funds repeatedly. A Crummey notice lets beneficiaries know they can access the funds, but the nature of the trust would prevent withdrawal of the funds and leave them for the trustee to allocate to the insurance premiums.
Established insurance policies in Riverhead can also be transferred to an ILIT, but if the grantor dies within three years of the transfer, the Internal Revenue Service will demand the proceeds be included in the taxable estate.
Those with loved ones who are dependent on Social Security Disability and Medicaid because of their special needs can consider using an ILIT to provide additional resources, as recipients of these benefits cannot exceed income caps. The caps are so modest, only $1,550 a month for SSDI and SSI recipients, that there is not much room for enhancing them. Passive investment income, however, do not count against the cap, so an ILIT can provide a way to carefully distribute funds and enhance a challenged loved one’s life.
There are many ways to ensure the assets you amass in your lifetime go where you want them. One legal shelter for your wealth is the irrevocable life insurance trust.
By managing your assets carefully, we can preserve what you worked hard for and deliver it into your loved one’s hands. Talk to a seasoned attorney to learn more about irrevocable life insurance trusts in Riverhead today.
