Irrevocable Life Insurance Trust (ILIT)

Define Insurance Trust:
An irrevocable life insurance trust, shortly known as an ILIT, is an irrevocable trust created for the main purpose of owning a life insurance policy. Similar to other trusts, the insurance trust is a contract between a grantor and a trustee to administer certain property, in this case an insurance contract, for the benefit of named beneficiaries. Unlike any other trust, insurance trusts cannot be rescinded, amended, or modified in any way after it is created. Once the grantor contributes property to the trust, he cannot later reclaim ownership of the property or change the terms of the trust.

One of the primary reasons for executing a life insurance trust is estate tax considerations. If the trust is properly constructed, the death benefits paid to the trust will be free from inclusion in the gross estate of the insured. It will further extend a helping hand to insured’s surviving spouse without inclusion in the surviving spouse’s gross estate either.