Matthew S. Payne is a Schaumburg-based attorney with a 20-year record of success in civil litigation, real estate law and estate planning.

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Why an ILIT trust makes sense

On Behalf of | Dec 8, 2021 | Estate Planning

Funding your Illinois trusts with annuities could create a tax haven for you. When trusts are irrevocable, their status signifies how their assets are handled. A revocable trust can, instead, be changed without issue, but this results in lesser hedges when sheltering against taxes. Fortunately, the irrevocability of the irrevocable life insurance trust, or ILIT, does the contrary.

No taxes on insurance annuities

The purpose of putting annuities into a trust is your right to reduce estate taxes. Every asset within an estate is subject to taxation, and this includes anything inside of your trusts. How a trust is written, the type it is and its stated use will dictate its final taxation. With an irrevocable life insurance trust, estate owners specifically protect their insurance annuities from a tax.

Why an annuities trust makes sense

The ILIT trust makes sense when your annuities create a surplus that could be passed on to beneficiaries. Annuities that aren’t urgently needed could be used to rebuild or grow an estate. Here’s why sending annuities to a trust makes sense:

  • At the time of withdrawal: Nothing is taxed until the annuity leaves the trust.
  • As a deductible item: Once annuities are used, they can reduce your taxable income.
  • For estate transfers: Transferring an estate via a trust might not qualify as taxable.
  • When annuities are income: Annuities received as income are eligible for sheltering in a trust.

Annuities trusts of Illinois

Trusts allow you to legally reinvest capital gains, interests or dividends without taxation. Though capital gains laws only protect your profits for a year, trusts can shelter assets for up to 20 years. The same rules apply when the contents of a trust are annuity payments. Annuities don’t have to change your taxable status.