Irrevocable Life Insurance Trust (ILIT)

WHAT IS AN ILIT?

An ILIT is an estate planning wealth management tool that is specifically drafted to own a life insurance policy or policies.  The ILIT is irrevocable and once set up, cannot be changed.  Designed to reduce estate tax while creating the ability to pass on the insurance proceeds to heirs and beneficiaries.

WHAT IS AN IRREVOCABLE LIFE INSURANCE TRUST (ILIT)?

An Irrevocable Life Insurance Trust (ILIT) is a non-amendable irrevocable living trust, meaning once it is set up, it is no longer part of your estate and cannot be changed. It holds one or more life insurance policies. It is a financial planning and estate planning tool that used properly can save in estate taxes. You have given full control to the Trustee, yet you do have the right to change the Trustee at any time!

The Trust is also the beneficiary of the policy. Properly drawn, ILIT’s provides several benefits but also has its disadvantages.

Read on.

When Should I use an Irrevocable Trust?

The main objective of an ILIT is to reduce or eliminate estate taxes. An ILIT excludes the death benefit from the estate of the insured.

Take note; if the decedent owns the insurance policy, the death benefits will be in his/her estate and can be subject to a 40% tax rate. Therefore, it’s a great wealth management strategy.

What Parties are Part of an ILIT?

There are several parties to the ILIT. The parties are the following:

• Grantor (trust-maker): Is the person(s) creating the ILIT. Grantor makes the rules on how the Trust makes the distributions to the heirs. You will “gift” a check payable to the ILIT trustee to enable payment for the policy premium.
• Trustee: Administers of the Trust. Note: the grantor should not be the Trustee to retain the full tax benefits.
• Beneficiary: When you purchase the life insurance policy, you’ll designate who gets the death benefits — the life insurance beneficiary.

Learn more about an ILIT from a Trust Attorney.