What is an irrevocable life insurance trust?
An irrevocable life insurance trust (ILIT) is a form of trust that is used to hold life insurance policies in California. It is designed to provide financial protection to beneficiaries, such as children or other heirs, upon the death of the insured policyholder. The trust is set up as an irrevocable trust to ensure that the funds distributed to the designated beneficiaries remain theirs and are not subject to taxation from the government. An ILIT is generally managed by an independent trustee, or a group of trustees, who are responsible for managing the trust funds and making sure that the designated beneficiaries receive the funds as intended. The trust will include specific instructions in the event of the death of the insured policyholder, and will distribute the proceeds of the policy to the designated beneficiaries. The trust is designed to protect the policy proceeds from taxes and creditors, as the assets held within an ILIT are not considered part of the estate of the deceased policyholder. The proceeds of the policy will be exempt from estate taxes and creditors are not able to make a claim against the trust, meaning that the beneficiaries are able to receive the full amount of the policy without any deductions. In California, the Life Insurance Trust Law (LITL) requires that certain conditions be met for an ILIT to be considered valid and enforceable. This includes a properly written trust document that meets the requirements of the law, as well as a trust designated bank account for deposit of the trust funds. It is important to consult with an experienced attorney to ensure that your ILIT meets the requirements of these laws.
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