ILIT- Irrevocable Life Insurance Trust Incidents of Ownership

Proceeds from insurance on your life will be includible in your gross estate for federal estate tax purposes, even though another person is the policy beneficiary and you were not the technical owner of the policy, if at death you hold any “incidents of ownership” for that policy. Such incidents include the power to:

  • Change the beneficiary,
  • Surrender or cancel the policy,
  • Assign the policy,
  • Revoke an assignment,
  • Pledge the policy for a loan, or
  • Obtain from the insurer a loan against the policy’s surrender value.

 

This estate tax inclusion will occur whether you hold these incidents of ownership directly or even indirectly. For example, if you, as the insured, hold these incidents as a trustee of a trust that owns the life insurance policy on your life

Consequently, in planning for the ownership of an insurance policy and the payment of the policy proceeds, you must be careful to avoid the retention of any incidents of ownership. Ordinarily, this means that you, as the insured, cannot retain any rights or powers, in any capacity, to affect the policy.

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