An irrevocable life insurance trust (ILIT) in Florida is a strategic financial tool that provides a way to remove life insurance from your taxable estate while ensuring your beneficiaries receive the proceeds directly and free from estate taxes. By setting up an ILIT, you, as the grantor, relinquish control over the policy, which means the trust, once established, cannot be altered or rescinded. This type of trust allows for the efficient management and distribution of life insurance proceeds, offering significant tax advantages and asset protection, making it an attractive option for estate planning in Florida. Let Verras Law design your ILIT to ensure your estate planning needs are effectively met.

Purpose and Benefits Of Irrevocable Life Insurance Trusts In Florida 

  • Estate Tax Minimization: One of the main benefits of an ILIT is reducing or eliminating estate taxes. For tax purposes, policy proceeds are generally included in the insured’s estate. By transferring ownership of the policy to an ILIT, the policy’s value is removed from the estate, potentially reducing estate tax liability.
  • Asset Protection: Assets held in an ILIT are generally protected from beneficiaries’ creditors, which can provide a layer of asset protection for beneficiaries, shielding the life insurance proceeds from potential creditors.
  • Control Over Distribution: The grantor can specify how and when the life insurance proceeds are distributed to beneficiaries. This control is exercised through the trust document and can help ensure that the proceeds are used for the intended purposes, such as providing for family members or paying estate taxes.
  • Privacy: Assets held in a trust generally avoid the probate process, which is a public proceeding. This means that the distribution of assets held in an ILIT can remain private, unlike assets passing through a will, which becomes a matter of public record.
  • Continuity of Management: The ILIT trustee manages the trust assets according to the trust document’s terms. The trustee can continue to operate the trust in case of the grantor’s incapacity or death, ensuring that a designated individual or institution manages the assets.

Requirements Of Trust Management and Considerations in Florida

As in other states, Florida has specific legal requirements for establishing and administering an ILIT. These requirements may include drafting the trust document by state law and ensuring that the trust is adequately funded and administered. Choosing the right trustee is crucial. The trustee is responsible for managing the trust assets, investing funds, making distributions to beneficiaries, and ensuring that the terms of the trust are followed. The trustee can be an individual or a corporate trustee, such as a bank or trust company. The ILIT must be the owner and beneficiary of the life insurance policy. This is essential to ensure that the policy proceeds are excluded from the insured’s estate for tax purposes.

In addition, to qualify for the annual gift tax exclusion for contributions to the ILIT, the grantor typically provides beneficiaries with what is known as “Crummey notices.” These notices inform beneficiaries of their right to withdraw contributions to the trust within a specified period, typically 30 days. In addition, while an ILIT is irrevocable, it can still provide some degree of flexibility through provisions such as appointing successor trustees, granting the trustee discretion in making distributions or allowing for the trust amendment under certain circumstances.

Contents of the Irrevocable Life Insurance Trust Document

  • Identification of Parties: The trust document should clearly identify the grantor, trustee, beneficiaries, and other relevant parties.
  • Trust Purpose and Powers: The document should outline the trust’s purpose (for example, estate tax minimization and asset protection) and specify the powers granted to the trustee to carry out the trust’s objectives.
  • Insurance Policy Provisions: Details regarding the life insurance policy owned by the trust, including the policy number, insurer, coverage amount, and any specific instructions for managing the policy.
  • Distribution Provisions: Instructions on how and when the life insurance proceeds are to be distributed to beneficiaries, including any conditions or restrictions on distributions.
  • Trust Administration: Procedures for administering the trust, including the trustee’s duties and responsibilities, investment powers, accounting requirements, and procedures for removing or replacing the trustee if necessary.
  • Governing Law: The trust document should specify that it is governed by Florida law and include any other legal provisions necessary to ensure the validity and enforceability of the trust.
  • Contingency Planning: Provisions for what should happen in the event of the grantor’s incapacity or death, including the appointment of successor trustees and instructions for winding up the trust.
  • Tax Considerations: The trust document should address the tax implications of the trust structure and ensure compliance with relevant tax laws.
  • Amendment and Termination: While an ILIT is generally irrevocable, the trust document may include provisions allowing for the amendment or termination of the trust under certain circumstances, such as changes in tax law or family circumstances.

Speak to a Tampa and Palm Harbor Estate Planning Attorney

In summary, an ILIT in Florida can be a valuable tool for estate planning, providing numerous benefits such as minimizing estate tax, asset protection, and control over the distribution of assets. However, establishing and administering an ILIT requires careful consideration of legal requirements, tax implications, and the grantor’s and beneficiaries’ specific needs and objectives. Verras Law has experienced Florida estate planning attorneys who can work with you to ensure the ILIT is properly drafted and implemented to achieve its intended goals. Contact our office for an initial consultation to see how we can help you with your estate planning needs.