What is an irrevocable life insurance trust?
An irrevocable life insurance trust (ILIT) is a legal tool that is commonly used in Hawaii to protect an individual’s estate from inheritance taxes. An ILIT is a trust that is specifically designed to own an insurance policy and make life insurance proceeds available to the beneficiary of the trust. The ILIT is an irrevocable trust, which means that it can’t be changed or canceled without the consent of all parties involved. An ILIT can be established with either a living or a deceased person as the insured and the beneficiary. When the insured individual passes away, the policy proceeds pass to the trust and are distributed as designated by the trust document. Since the trust is irrevocable, the life insurance proceeds do not become part of the insured’s estate and are thus not subject to estate or inheritance taxes. The ILIT can also provide various other benefits, such as protecting the proceeds from creditors, protecting the proceeds from a divorce, and minimizing gift taxes. ILITs are complex legal instruments and are usually set up with the assistance of a qualified business lawyer. An ILIT should be drafted carefully to ensure that it meets the needs of the individual and complies with state and federal laws. It is important to understand all of the rules and regulations regarding ILITs in Hawaii before establishing one.
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