Can I Only Put Life Insurance in the Trust?

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Is Life Insurance the Only Thing I can Put in My Trust?

Yes. Any asset can be placed in the ILIT.  Sometimes an income producing asset is placed inside of an ILIT to provide an income stream from which to pay the premiums on the life insurance. This technique eliminates any further gifts by the trustmaker/insured to the ILIT for the purpose of paying the life insurance premiums. Life insurance is an important tool that can be purchased to transfer the risk associated with a premature death from a policyholder to an insurer and financially provide for surviving family. It can also be used to provide liquidity of assets upon death, as physical assets need not be sold first to pay for estate taxes. Although life insurance is valuable in these respects, its use in estate planning can be problematic from a tax perspective.

How an Irrevocable Life Insurance Trust (ILIT) Works?

Through the use of an ILIT, the trust can purchase the policy or the policy can be transferred to the trust. The trust document will appoint a trustee to administer the assets that are owned by the trust and will provide the terms under which they should be administered. The document will also designate beneficiaries and detail the terms by which the beneficiaries will receive benefits from the trust. Because the trust is irrevocable, it cannot be altered once it’s established.

What if I Want to Access the Cash Value of an ILIT?

Generally speaking, you cannot directly access the cash value of an insurance policy owned by your ILIT.  However, if the trust document permits, you can borrow funds from the life insurance trust, provided it is fully documented, interest is paid at an appropriate rate, and the loan is repaid over time. ILITs can also be designed to provide access to the cash value of the life insurance policy for the needs of your spouse or your child.