Terminating an ILIT may require the creation of additional documents.
Some people with life insurance utilized an irrevocable life insurance trust (ILIT).
The purpose for many was to decrease their taxable estate and provide “liquidity” to pay potential estate taxes to ransom an otherwise illiquid estate (think farm, ranch, or other family business operation).
Perhaps this describes you.
A recent Nj.com addresses this timely topic asked many many in your shoes: “Should I terminate this trust and do I need a will?”
What if an ILIT may no longer be necessary to accomplish this estate planning goal.
At present, the estate tax exemption threshold is $11.7 million for individuals.
Although the exemption may be lowered under the current federal administration earlier than the anticipated expiration date on January 1, 2026, an ILIT may no longer be necessary for other reasons.
Did you create an ILIT when you had children who were financially dependent on you?
Are they now adults with their own careers and financial security?
If yes, you may no longer need your ILIT.
If you funded your ILIT with a term policy, you may be able to simply let your policy expire to end the trust.
[Alternatively, your trustee may want to investigate a “life settlement” to sell your no-longer-needed policy for cash.]
The terms of the ILIT may give specific instructions for terminating the trust.
Depending on the terms, the process can be complex or straightforward.
Working with an experienced estate planning attorney can help you lawfully close your ILIT and create additional legal documents to satisfy your estate planning needs.
Even if you no longer choose to have an ILIT as a part of your estate, you may choose to include a revocable living trust.
With this trust in place, you can bypass probate for the distribution of your assets and also allow your successor trustee to manage the finances held in the trust if you become incapacitated.
A revocable living trust will not free you from all taxes.
A trustee may be required to pay income tax on the gross income of the trust.
Whether you choose to terminate your ILIT or retain it, you will want to review your estate plan to ensure it still meets your goals.
Reference: nj.com (June 15, 2021) “Should I terminate this trust and do I need a will?”