Revocable and irrevocable life insurance

Posted: Wed Jan 17, 2007 12:16 am Post Subject:

Ok Joven..you ask alot of good questions! Well let me start by saying this..I am not to sure how the irrevocable and revocable Life insurance policies work but....I do know about revocable and irrevocable trusts and well I am assuming that they work the same way...

A Revocable life insurance trust or life insurance policy is one where the owner can still make changes to the policy. ie changing the beneficiaries, or the owner, and well basically can make changes to the policy or trust as they see fit.

An Irrevocable life insurance trust or life policy is one where no changes can be made to the trust or policy. It must stay the same.

Here is how I can sort of explain this... say "you" own your home and it is in a revocable trust with trustees named, and "you" are one of the trustees allowed to make changes etc. When you pass away the home will then be included in your estate for tax purposes (meaning it will be taxed!)

If you put that same home into an Irrevocable trust and the trust was then the owner of the home and again you can still be a trustee if you wish to sell the home etc. But since the trust owns the home and it is irrevocable technically the home is not yours and therefore will not be included in your estate if you pass away.

It is the same thing I believe with a life policy...sometimes for tax purposes it is not in your best interest to be both the owner and the insured on your own policy as again it can be included in your estate since you are the owner....

Alot of this has to do with estate planning....I dont know if I am getting my point across...but maybe someone else here can jump in and help me....Please do some research on your own and it would be best to talk with a CPA also to assist you on such decisions.

Posted: Wed Jan 17, 2007 09:27 am Post Subject:

Hi, nique,

Your answers are good. I don't know about that irrevocable and revocable trust in properties such as a home. Thanks for that great explanation. Yes as you have said it, it is for estate planning purposes.

You can answer financial questions good enough. May i know what you do for a living? Are you a financial planner or something like that?

Thank again!! I guess we will have a good relationship in this community. There are many people who can be helped because of your wonderful ideas.

you ask alot of good questions!

Posted: Wed Jan 17, 2007 09:40 am Post Subject:

Hi....its quite simple to understand at times though. A Revocable Life insurance policy is one where in the beneficiary doesn't have any right towards the policy proceeds when the policy holder is still alive and his status as a 'beneficiary' may get annulled by the holder at any point of time till the holder is living. On the other hand an Irrevocable policy is one which can't be canceled by the policy holder without prior permission from the beneficiary. Hope that helps you to some extent! Thanks, Evan

Posted: Wed Jan 17, 2007 02:09 pm Post Subject:

That is one good point evan, thanks!

Posted: Tue Feb 06, 2007 11:22 am Post Subject:

The proceeds of a life insurance policy are included for federal estate tax purposes in the estate of a decedent who is the owner/insured of the policy. This is true even if the proceeds are paid to a designated beneficiary other than the decedent's estate.

An Irrevocable Life Insurance Trust ("ILIT") may be used to hold the "incidents of ownership" of a life insurance policy, thus removing its proceeds from the insured's taxable estate. Incidents of ownership include the ability to cash in the policy, take a loan on it, or change the policy's beneficiary designation.

Generally, a policy owned by the insured which is transferred to an ILIT will be included in the decedent insured's estate unless the insured survives for three years after the transfer.

The settlor/insured may pay the premiums of the life insurance policy in the ILIT by making gifts to the trust beneficiaries using "Crummey" provisions. Such gifts qualify for the $12,000 per donee annual gift tax exclusion. The settlor/insured may not be the trustee of the ILIT. At the settlor's death the life insurance proceeds will be paid into trust and administered according to the trust provisions established by the settlor for the benefit, for example, of the settlor's spouse or children.

As is generally the case with life insurance policies, there will be no income tax payable on the insurance proceeds distributed at the settlor's death. Assuming the settlor has survived for three years after the transfer of an existing policy into the ILIT, or if the policy was originally purchased by the ILIT, the insurance proceeds will not be subject to estate tax at the settlor's death.

Posted: Thu Mar 01, 2007 10:48 am Post Subject: Landlords Insurance

Can you please tell me about landlords insurances? what this type of policy covers and what excluded in this type of policy?If it is required for a building in which there are several offices rented out how the landlord can protect his interest?

Posted: Tue Jul 29, 2008 10:55 pm Post Subject: ILIT

I have an ILIT life ins policy in my name,put in by my dad,who is still alive.Can I cash this policy in now while he is still alive

Posted: Fri Jan 30, 2009 02:10 am Post Subject: life insurance

Hi, I am divorcing my husband but as of right now we are still legally married. Can he remove me as beneficiary on his life insurance policy without my knowledge or permission? The policy was issued as part of his retirement pkg and we paid small premiums on it since 1988?
I recently found out he is terminally ill, and he is so angry with me that we can not sit down and talk.

Posted: Fri Jan 30, 2009 08:45 am Post Subject:

See the responses here

Thanks,
Lakemen

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