Should I Keep or Dissolve My ILIT?

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Changing circumstances may affect the usefulness of an ILIT.

Do you remember when the federal estate tax limit was $600,000?

I do.

At this time, you may have set up a revocable living trust (RLT) and an irrevocable life insurance trust (ILIT) to provide for your family if you died.

Because many years have passed since the estate tax limit was $600,000, your children are likely grown and financially independent.

Also, your estate may be worth more, but far less than the current $11.7 million exemption threshold.

With the exemption set to revert to $5 million (as indexed for inflation) in 2025 and with no guarantee other changes will not be made by the current administration, your estate planning requires intentionality.

According to a recent article titled “Should I terminate this trust and do I need a will?,” you should schedule a review with your experienced estate planning attorney.

An ILIT may no longer be necessary.
Dissolving your ILIT may provide tax benefits.


The ILIT was created for a specific time in your life to address certain estate planning tax considerations.

The circumstances giving rise to these considerations may no longer need to be addressed.

If you funded your ILIT with a term life insurance policy, your estate planning attorney may recommend letting the life insurance policy expire.

If you do choose to terminate your ILIT, the complexity will depend on the language used in the trust.

Even if you choose to terminate your ILIT, a revocable living trust may still benefit your estate plan.

With a RLT, you can both avoid probate and control the assets held by the trust while you are alive.

By naming a successor trustee, the RLT assets can still be utilized for you if you become incapacitated.

Without a RLT, banks may freeze your assets held outside the RLT until inheritance taxes and estate taxes are paid.

Those assets held in a RLT are not frozen.

Although the assets may not be subject to a freeze, trustees may be required to pay income taxes on the assets held in the RLT after you die.

Although you may not need an ILIT and may still utilize a RLT in your estate plan, having a last will and testament is wise to ensure any remaining assets are distributed according to your wishes.

Reference: (June 15, 2021) “Should I terminate this trust and do I need a will?”

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