What is an irrevocable life insurance trust (ILIT)?

An irrevocable life insurance trust (ILIT) is a type of trust created in the state of Washington that can be used to protect life insurance proceeds and manage their distribution after death. The trust is typically funded with life insurance proceeds, which are considered assets that are not taxable when the policyholder dies. An ILIT is set up as an irrevocable trust, meaning that the trust terms cannot be changed or revoked, and all the assets that it owns belong to the trust rather than to the individual who created it. This allows the policyholder to have control over how the life insurance proceeds are distributed, while avoiding the taxation associated with owning life insurance. Beneficiaries of an ILIT can be family members, friends, charities, or any other organization that the trust creator chooses. An ILIT can also have provisions that restrict when and how beneficiaries can access the trust funds, and the trust creator can also name a trustee to manage the trust and its assets. Generally, if the policyholder dies within the three-year period after the trust was created, the life insurance proceeds are not subject to estate taxes. However, if the policyholder dies after the three-year period, the proceeds are treated as part of their estate and subject to taxation. In Washington, an ILIT can help protect the policyholder’s assets and provide a way to pass them on to their chosen beneficiaries. It also ensures that the proceeds are not subject to taxation, which can provide significant savings for the beneficiaries.

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What is an irrevocable life insurance trust (ILIT)?

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