Although it may be difficult to think about your own death, one of the most important aspects of a comprehensive estate plan for many people is funeral and burial planning. If you are one of those people, you may decide to incorporate an Irrevocable Life Insurance Trust into the funeral and burial component within your estate plan. For those who are new to estate planning, let’s examine what an Irrevocable Life Insurance Trust (ILIT) is and when you might need to include one in your estate plan.
Your Estate Plan
When you think about estate planning you probably envision a plan for the distribution of your estate assets after you are gone. Creating the framework for the distribution your estate assets may be a primary estate planning goal; however, a comprehensive estate plan doesn’t stop there. A comprehensive estate plan can also help your assets grow over your lifetime, plan for the possibility of your own incapacity, ensure that you can pay for long-term care during your retirement years, and much, much more. Given the highly personal nature of estate planning, your estate plan will include components that help you reach your own unique goals and objectives. One of those goals may be funerial and burial planning.
What Is Funerial and Burial Planning?
Like many people, the way your body is handled after your death and/or the type of service that follows your death, may be especially important to you. If so, you will likely wish to include a funeral and burial component to your estate plan. As the name implies, a funeral and burial plan allows you to make important decisions such as whether you will be cremated or buried as well as allowing you to plan the details of your funeral service if you choose to have one. Moreover, you can make the financial arrangements for your service ahead of time so that your loved ones are not scrambling to try and finance your funeral and burial while they are still in the early stages of grieving. Sadly, it is quite easy to take advantage of loved ones during this time which is why people often end up paying far more than they should for things such as a casket, burial plot, and funeral services. One option for both planning and funding your funeral and burial plan is an ILIT.
How Does an Irrevocable Life Insurance Trust Work?
Although you may have discussed your wishes regarding your funeral and burial with a spouse, adult child, or other loved one, that discussion does not guarantee that your wishes will be honored. Your confidant could forget the details amidst his/her grief or could disagree with your wishes and intentionally not honor them. Creating an ILIT resolves that potential problem and addresses the funding for your funeral. An ILIT is a special type of trust that is funded by the proceeds of a life insurance policy. As the Settlor, you create the trust and appoint a Trustee to administer the trust. You then purchase or transfer in a life insurance policy, the proceeds of which pay out into the trust upon your death. Those proceeds then fund your funeral service. Along with providing the funding, however, you can also use the trust terms to ensure that your burial and funeral are carried out according to your wishes. Your Trustee will be legally obligated to abide by those terms once the trust activates. An ILIT, therefore, provides both the funding for your funeral and gives you the peace of mind that comes from knowing your wishes will be honored after you are gone.
Please download our FREE estate planning checklist. If you have additional questions or concerns about how an irrevocable life insurance trust might fit into your estate plan, contact us at the Northern California Center for Estate Planning & Elder Law by calling (916)-437-3500 or by filling out our online contact form.