What is an irrevocable life insurance trust (ILIT)?

An irrevocable life insurance trust (ILIT) is a trust created in California to hold life insurance policies. The trust is established by someone other than the policyholder or beneficiaries, such as an attorney or financial advisor, who drafts the trust agreement. An ILIT provides certain legal and tax benefits to the beneficiaries of the policy. For example, if the policyholder is the beneficiary, the death benefit proceeds are not subject to federal income tax and are not included in the taxable estate of the deceased. Therefore, the policy can be used to fund estate taxes without it counting as part of their estate. An ILIT can also be used to protect the policy beneficiary from creditors, lawsuits and judgments. The trust is irrevocable, meaning the policyholder cannot change the terms or revoke the trust, unless the trust document permits it. This means that the policy owner cannot take out any of the money from the trust or use it for their own benefit. The trustee of the ILIT is responsible for paying all premiums due on the policies and managing the trust’s assets. They also determine how and when the beneficiaries will receive distributions from the trust, according to the trust agreement. In short, an ILIT is an irrevocable trust established in California to protect the death benefit proceeds of a life insurance policy, while providing certain legal and tax benefits to the beneficiaries of the policy.

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What is an irrevocable life insurance trust (ILIT)?

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