Temporarily Paying More for Insurance Policies in ILITs

Many wealthy families have created irrevocable life insurance trusts (ILITs) where the trust owns the insurance policy as opposed to the retiree. The premiums are funded by regular gifts to the trust and this method shields heirs from the federal estate tax. Now that Congress has lifted the gift tax exemption to $5 million from $1 million, many people are carrying up to $4 million more than what they may need in life insurance and paying more in premiums than they need to be. 

Insurance advisors do not recommend winding down the ILIT because the gift tax could easily go back up in 2012. Advisors do recommend to regularly review the insurance in ILITs and sell it for something more appropriate if necessary.

See Scott Martin, Trust Advisors Flocking to Life Settlements for ILITs, Other Trusts, The Trust Advisor Blog, May 22, 2011. 

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.