What is an Irrevocable Life Insurance Trust?
An irrevocable life insurance trust (ILIT) is a type of trust that is used to hold a life insurance policy. An ILIT is irrevocable, which means that it cannot be amended or terminated once it has been created.
The purpose of an ILIT is to remove the life insurance policy from the insured’s estate, which can help to reduce estate taxes and protect the policy from creditors. The trust is the owner and beneficiary of the life insurance policy, and the insured’s assets are transferred to the trust in exchange for an irrevocable promise to pay premiums on the policy.
There are several benefits to using an ILIT, including:
- Estate tax savings: By removing the life insurance policy from the insured’s estate, an ILIT can help to reduce estate taxes.
- Creditor protection: An ILIT can protect the life insurance policy from creditors of the insured.
- Control: The ILIT allows the insured to retain control over the use of the life insurance proceeds, as the trust can be designed to distribute the proceeds in a way that reflects the insured’s wishes.
If you are considering setting up an ILIT, it is important to consult with an attorney who can help you create the trust and ensure that it meets your needs and complies with applicable laws.