The foundation of estate planning is control. Life happens. When one spouse dies it is natural for the survivor to remarry. In remarriage loyalties change. It is not good or bad. It just is. If you have children from a prior marriage or other beneficiaries you want to protect, an ILIT trust may be for you. ILIT stands for Irrevocable Life Insurance Trust. ILIT trusts pass the proceeds of a life insurance policies directly to beneficiaries in a tax efficient way. An ILIT is irrevocable, which means it cannot be changed. Once the ILIT is established with your children from a prior marriage or other loved ones as the sole beneficiaries; that is it. Those individuals get the policy proceeds. There is no risk of the assets going to anyone except your named beneficiaries. In addition, as an irrevocable trust, the policy is generally protected from your creditors and predators. I would also recommend that you name one or other of the beneficiaries as Trustee of the Trust. They would be responsible for managing the trust and keeping the policy alive. During the administration of the Trust, notice has to be given to the beneficiaries in order to protect them from a special type of tax. These notices are called “Crummey Letters” (yes Crummey). Finally at your death, the policy proceeds are payable to your loved ones. If handled properly, the insurance proceeds pass to the beneficiaries without income tax or estate tax consequences. This type of planning enables you to protect all of your children and other beneficiaries at the same time.
