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Irrevocable Life Insurance Trust


An irrevocable life insurance trust (ILIT) is a legal arrangement that can be used to help mitigate the impact of estate taxes on life insurance policies. It works by having the ILIT, rather than the insured individual, own the life insurance policy and be named as the beneficiary. This ensures that the proceeds from the policy pass outside of the estate and are not subject to estate or inheritance taxes. While an ILIT can provide a number of potential tax advantages, it is a complex legal arrangement that requires professional assistance and incurs costs. It is most effective when in place prior to buying the insurance, and is generally irrevocable, meaning that the creator of the trust cannot make changes to it or withdraw the assets. An ILIT is typically funded by gifts made by the grantor, which must be structured in a way that qualifies for any available annual exclusions from the federal gift tax. It is important to consult with a tax advisor or estate planning attorney when considering whether an ILIT is appropriate for your specific situation.

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