What is an irrevocable life insurance trust?
An irrevocable life insurance trust (ILIT) is a trust set up to hold a life insurance policy for the benefit of the insured’s beneficiaries. In Rhode Island, an ILIT must be established by someone other than the insured, such as the life insurance policy’s owner or a separate trustee. The trustee will be responsible for managing the ILIT’s assets, including managing the life insurance policy and investing any funds received from the policy’s death benefits. An ILIT is irrevocable, meaning that the insured cannot cancel or modify the trust once it is established. Once the insured passes away, the ILIT’s trustee will use the policy’s death benefits to fund the trust. The ILIT’s beneficiaries, who are designated in the trust documents, will then receive the trust’s proceeds. The primary benefit of using an ILIT is that the life insurance policy’s death benefits are not subject to estate taxes since they are already held in the trust. Additionally, since the trust is managed by a trustee, the ILIT’s beneficiaries are protected from any potential creditors of the insured. By establishing an ILIT, the insured’s beneficiaries will receive the policy’s death benefits without any hassle or delay.
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