What is an Irrevocable Life Insurance Trust?
An irrevocable life insurance trust or ILIT is a type of trust used in estate planning to reduce estate taxes. In an irrevocable life insurance trust, the owner of a life insurance policy transfers the policy and/or money to pay life insurance premiums, to a trust for the benefit of his beneficiaries. The trust maintains ownership of the life insurance policy thereby keeping the policy proceeds out of the original policy owner’s estate for estate tax purposes. Because this type of life insurance trust is irrevocable, it cannot be changed or terminated by the grantor or trustor. The grantor or trustor is the person who makes the trust.
In an irrevocable life insurance trust, actual ownership of the policy is transferred to the trust, rather than naming the trust as the beneficiary of the policy. If you set up an irrevocable life insurance trust as part of your estate plan, you will not have any right to the assets in the trust. While one reason for making a life insurance trust is to keep the proceeds of the policy out of the estate for estate tax purposes, if the insured dies within three years of transferring his policy to the trust, the death benefit will be included in the gross estate of the insured.
Advantages of an Irrevocable Life Insurance Trust
Some of the advantages of an irrevocable life insurance trust include: (1) the policy proceeds are not included in probate, so creditors are prevented from making a claim against them; (2) the policy proceeds are not included in the insured’s gross estate, thereby reducing estate taxes; (3) the trust can be written in a manner that restricts the amount and manner of distribution of the trust funds to the beneficiaries; and (4) the funds in the trust can be used to pay estate taxes of the insured’s estate if necessary.
An irrevocable life insurance trust can be funded with an existing life insurance policy or the grantor can put money or other assets in the trust to pay premiums on a policy to be purchased by the trust on the grantor’s life. To establish an irrevocable life insurance trust, you should consult an estate planning lawyer and your accountant or tax advisor.
Reference Guide on Irrevocable Life Insurance Trusts
One of the most current and comprehensive reference guides on irrevocable life insurance trusts is Irrevocable Life Insurance Trusts Line by Line: A Detailed Look at Irrevocable Life Insurance Trusts and How to Change Them to Meet Your Clients' Needs. Written for estate planning attorneys, it provides a line by line analysis of irrevocable life insurance trusts. It includes boilerplate clauses as well as clauses that may be modified. This guide covers the complete range of issues that must be addressed when making an irrevocable life insurance trust, such as the annual gift tax exclusion, Crummey powers, the three-year rule, incidents of ownership, as well as gift, estate, and generation-skipping transfer taxes.
Written by attorneys with extensive experience in estate planning, wealth transfer, tax planning, and trust administration, Irrevocable Life Insurance Trusts Line by Line: A Detailed Look at Irrevocable Life Insurance Trusts and How to Change Them to Meet Your Clients' Needs also includes a CD-ROM with a sample form of irrevocable life insurance trust agreement.
See life insurance and other types of trusts for more information.
. Written for estate planning attorneys, it provides a line by line analysis of irrevocable life insurance trusts. It includes boilerplate clauses as well as clauses that may be modified. This guide covers the complete range of issues that must be addressed when making an irrevocable life insurance trust, such as the annual gift tax exclusion, Crummey powers, the three-year rule, incidents of ownership, as well as gift, estate, and generation-skipping transfer taxes.
Written by attorneys with extensive experience in estate planning, wealth transfer, tax planning, and trust administration,