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How to Model an ILIT

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An Irrevocable Life Insurance Trust (ILIT) is a popular estate-planning tool designed to minimize estate taxes by moving life insurance proceeds outside of the estate.

In eMoney, you can model an existing ILIT for your clients in Advanced Facts, or create a scenario in Plans to show the impact an ILIT would have on their financial plan.

Model An Existing ILIT

Let’s look at entering an existing ILIT in the Advanced Facts. First, you’ll want to add the life insurance policy under Insurance > Life. Next, follow these steps:

  • Go to Advanced Facts > Trusts and Partnerships > ILITs.
  • Click Add an ILIT.
  • Complete fields with the appropriate information.
  • Make sure to add a Remainder Beneficiary, the recipient of the trust assets at the end of the simulation.
  • Select Yes or No for Crummey Powers. If set to Yes, it will allow gifts made by the client or spouse to the trust to qualify for the annual gift tax exclusion.
  • Click Save. 

After you enter the ILIT, you’ll want to go back to the life insurance policy you previously added and follow these steps:

  • Make the ILIT the owner and beneficiary of the life insurance policy.
  • Determine the premium payer.
    • If the trust is the premium payer, the trust must own other assets to pay the premium expense.
    • If the client/spouse is the premium payer, the expense will come out of their cash flow. If you set Crummey Powers to Yes, the premium gift will qualify the annual gift exclusion.

Add an ILIT to a Plan 

To recommend an ILIT to your clients and show the impact it will have on their estate, you’ll want to use Plans. Navigate to Plans, add a new scenario, and then follow the steps below.

To transfer an existing life insurance policy into a new ILIT: 

  • Select Add a New > Trusts and Partnerships > ILIT.
  • Click Add Fact.
  • Complete the fields as explained in the section above.
  • In the new field, Assets to be Transferred, you’ll select the existing life insurance policy.
  • Click Save.

Please note, that when transferring an existing policy into a new ILIT, a three-year limitation rule applies. This means the life insurance proceeds will not show up out of the estate until three years after the transfer occurs.

To add a new life insurance policy into a new ILIT: 

  • Follow the same steps to add an ILIT as you did above, but leave Assets to be Transferred blank.
  • Back on the scenario overview page, select Add a New > Insurance > Life.
  • Click Add Fact.
  • Complete the fields as explained in the Advanced Facts section. Remember to make the ILIT the owner and beneficiary of the life insurance policy and to determine the premium payer.
  • Click Save.

Now, you can view the client’s new ILIT in their reports. Some of the best reports and tools to use are the Estate Plan Technique > ILIT Analysis report, the Flow Charts report, and the Distribution Center.

For more information, check out the Creating an ILIT and Life Insurance Policy guide and Life Insurance and ILITs guide.

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