Irrevocable Life Insurance Trusts
An irrevocable life insurance trust, often called an ILIT, is a legal structure used to own life insurance policies outside of an estate, with the aim of managing how proceeds are treated for estate purposes and how they are distributed.
Ownership Outside the Estate
The general purpose of an ILIT is to own a life insurance policy so that the policy, and its proceeds, are held by the trust rather than by the insured's estate. Because the trust is irrevocable, the insured generally gives up ownership rights, which is what may place the proceeds outside the taxable estate under applicable law.
This is a legal and tax driven structure. Whether it produces the intended outcome depends on how it is drafted, funded, and administered, all of which must be handled by qualified legal and tax professionals.
Policy Ownership Considerations
Who owns a life insurance policy matters for estate purposes. A policy owned by the insured may be included in the taxable estate. A policy owned by an irrevocable trust, properly structured, may not be. The trust also controls who receives the proceeds and how, which can support broader distribution objectives.
Once a policy is transferred to an irrevocable trust, the insured generally cannot reclaim it or change the trust's terms. That irreversibility is the tradeoff for the potential estate planning benefits.
Potential Estate Tax Implications
We do not claim guaranteed estate tax savings. Whether an ILIT achieves estate tax benefits depends on the structure, the applicable law at the time, and the specifics of your situation. Estate tax rules change over time, and we do not publish specific exemptions or thresholds without confirming their current applicability.
There are also rules around transfers of existing policies into a trust, which may carry their own considerations. This is why ILIT planning must be done with qualified legal and tax counsel.
We Do Not Provide Legal or Tax Advice
An ILIT is a legal document created by an attorney. Our role is to help coordinate the insurance that the trust will own and to work alongside your attorney and tax advisor. We do not draft trust documents, do not provide individualized legal guidance, and do not claim guaranteed estate tax savings.
If an ILIT is appropriate for your situation, we will help ensure the insurance structure supports the trust's purpose, but the legal and tax work belongs to qualified professionals.
Our Approach
We collaborate with your attorney and CPA to align the insurance design with the trust structure. The goal is that the policy, the trust, and the rest of your estate plan work together, so that when the time comes, the proceeds flow where intended and the structure performs as planned.