What is an irrevocable life insurance trust?
An irrevocable life insurance trust (ILIT) is a trust designed to hold a life insurance policy, allowing the policy’s death benefit to be passed to beneficiaries without estate taxes or probate. In Washington, ILITs are useful for estate planning, especially for those with high-value estates. An ILIT is created after being established in a trust document. Its beneficiary is usually a family member, such as a child or grandchild. The trust document states who is allowed to make decisions about the insurance policy, such as who pays the premiums or who has access to the policy’s death benefits. Additionally, the trust document can refer to any financial institution or other entity to help manage the policy. Once the ILIT is created, the policy owner has no access to the policy’s death benefits. These benefits are paid directly to the trust, and are managed by the designated trustee. They may be used to provide supplemental funds to beneficiaries, or to pay estate taxes. ILITs also help protect the beneficiaries from creditors or can prevent an uninformed heir from mismanaging the funds. In Washington, ILITs help reduce estate taxes, provide an alternative way of passing on wealth, and protect beneficiaries from creditors. Although irrevocable, an ILIT can still be modified if the trust document allows for it. They provide an efficient way of providing financial security and inheritance to beneficiaries.
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