What is an irrevocable life insurance trust (ILIT)?

An irrevocable life insurance trust (ILIT) is a legal entity created in Arizona to protect a life insurance policy from the estate of the insured. It allows for the policy’s proceeds to pass to the trust’s beneficiaries without passing through the insured person’s estate, thus avoiding probate costs and estate taxes. An ILIT is irrevocable, meaning that once the policy is placed in the trust, it can’t be changed or revoked. An ILIT is usually set up as a grantor trust, meaning that the insured person is the grantor of the trust and the trustee handles the trust’s assets. An ILIT requires an independent trustee, who is responsible for making decisions about the trust assets. This trustee is also responsible for making sure that the trust’s beneficiaries receive the proceeds of the life insurance policy. In Arizona, an ILIT must meet certain requirements in order to qualify. The trust must be irrevocable, and the life insurance policy must be owned by the trust. Additionally, the trust must be set up for the benefit of the trust’s beneficiaries, and the trust must be funded with property or assets of the insured. An ILIT can be a great way to protect the proceeds of a life insurance policy and to ensure that the policy’s proceeds pass to the trust’s intended beneficiaries. However, it is important to seek advice from an experienced attorney before setting up an ILIT in Arizona.

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