The Hidden Risk in Your Life Insurance Plan—and How to Fix It

A local business owner came to us with a $2.5 million life insurance policy. His goal? To make sure his children could keep the family business running if he were to pass away.

What he didn’t realize was that because he personally owned the policy, the death benefit would be included in his estate—pushing it over the federal exemption limit and triggering a significant estate tax bill.

By establishing an Irrevocable Life Insurance Trust (ILIT) and transferring the policy into it, we helped preserve the full benefit for his family. The funds were shielded from estate taxes, protected from creditors, and distributed according to his wishes, without probate delays or tax surprises!

Life insurance is often thought of as a straightforward safety net, but without proper planning, it can have unintended consequences and be distributed in ways that damage futures. That’s where an ILIT comes in.

An ILIT is a specific kind of trust designed to own life insurance policies outside of your taxable estate. When used strategically, it offers several powerful benefits:

1. Tax Efficiency: It keeps the death benefit out of your estate, potentially saving heirs from estate taxes.

2. Asset Protection: Shields the funds from creditors and legal claims.

3. Control Over Distribution: Allows you to decide how and when your beneficiaries receive the money.

4. Privacy and Simplicity: Helps your family avoid the delays and the public process of probate.

ILITs aren’t just for the ultra-wealthy. They’re a smart solution for all business owners and even families with large insurance policies or anyone who simply desires more control over how their life insurance benefits are used.

If you’re serious about protecting your legacy, message me and let’s set up a time to talk. I can help you determine if an ILIT fits into your overall strategy and connect you with trusted legal partners and come up with a solid plan!