In some cases, the amendment of ILIT may be achieved by a private agreement without the need for judicial authorization, while in other cases, judicial authorization is required. In any event, the amendment to the ILIT often involves federal tax issues, so the supervision of an experienced estate planning lawyer is imperative. Their first step is to design and implement an ILIT agreement. As accurate writing is essential, you should hire an experienced lawyer. Although you have to pay the legal fees, the potential savings in inheritance tax should more than outweigh those costs. In the past, ILIT`s primary objective was to avoid death taxes. But it`s a versatile trust and can serve many purposes like divorce planning, buy/sell agreements, mixed family planning and much more. Easy to sculpt and easily recognized by the IRS, and ILIT is part of many succession plans. For example, Donna has a property valued at approximately $15 million, consisting primarily of a US$3 million principal residence in Florida, a $5 million investment real estate portfolio, a $2 million public relations company, $3 million in unskilled investments and $2 million in an IRA (skilled fund). Donna fears that after her death, her children will be forced to liquidate some of their investments or, worse, sell the public relations company in a fire sale to cover the IRS` estimated $1.5 million in tax debt. Currently, the cornerstone of Donna`s estate plan is a revocable trust that invents equally the entirety of her estate to her three daughters.
The best way to illustrate the value of an ILIT is to use an example. At the time of his death in 2020, John was living in Vermont and had a $3.25 million home and $1 million in insurance, bringing his gross real estate value to $4.25 million. Although this is significantly less than the federal amount for the federal estate tax exclusion for 2020, $11.58 million, John`s estate would normally be for the state`s inheritance tax on the line, since Vermont`s 2020 estate tax exemption is only $4.25 million. If John had set up an ILIT more than three years before his death, his policy would be excluded from his gross estate, which estimates him at only $3.25 million and eliminates the tax obligations of the Federal And Federal States. Although insurance income collected by a beneficiary after the death of the insured is generally not subject to federal income tax, income to be paid to the estate or the heir of the scammer is included in the value of the fraudster`s total wealth at the time of death (known as “gross reduction”) and may in turn be subject to federal and national tax.