With recent changes in federal gift and estate tax exemptions, many clients may want to take a new look at their old irrevocable life insurance trusts (“ILITs”).
In trust planning, irrevocable no longer means inflexible. Keeping this in mind, clients and advisors should review existing ILITs and weigh the trust’s potential practical benefits against the impact of termination, including the loss of creditor protection and centralized asset management for the beneficiaries. Federal tax laws also may change, recreating the estate tax exposure the ILIT initially addressed. Whether modification or termination is selected, clients, advisors, and trustees should ensure that the trustee’s actions with regard to the ILIT or its assets do not violate any fiduciary duties owed to the beneficiaries.