How Do You Terminate An Irrevocable Life Insurance Trust?
If you have an Irrevocable Life Insurance Trust (ILIT) that is no longer necessary, you may be wondering how to terminate it. While an ILIT is a binding trust, it is still possible to make changes to it. However, it is essential to read the exact terms of the trust and for the trustee to act in a manner that protects the interests of the trust first.
|Options for terminating an ILIT:|
|Rescue the policy out of the ILIT to eliminate the trust|
|Winding down the ILIT altogether|
It’s worth reviewing your existing ILIT to determine if it is still necessary, given the rising estate tax exemptions. If you decide to terminate your ILIT, the options on the table may vary from one state to the next, depending on the exact rules of the state. Seek legal advice to ensure that you understand the implications of terminating your trust.
It is crucial to ensure that the trustee of the ILIT has a fiduciary duty to its beneficiaries to honor the terms of the trust. The trustee should not sell the policy back to the grantor for less than market value and should act in a manner that protects the interests of the trust first. Additionally, ongoing costs such as trustee’s fees and trust accounting and tax returns should be taken into account when deciding to terminate an ILIT.
In conclusion, an ILIT can still be changed even if it is “irrevocable.” It is essential to read the exact terms of the trust and for the trustee to act in a manner that protects the interests of the trust first. Options for terminating an ILIT include rescuing the policy out of the trust to eliminate it or winding down the trust altogether. Seek legal advice to ensure that you understand the implications of terminating your trust.