What is an irrevocable life insurance trust (ILIT)?

An irrevocable life insurance trust (ILIT) is a common estate planning tool used in Maryland and many other states. It is a type of trust that holds an individual’s life insurance policy and makes it possible for the policy’s proceeds to pass to beneficiaries without being taxed. The trust is established by the policyholder for the purpose of providing financial protection to their loved ones. The trust is considered “irrevocable” because it cannot be changed or revoked once it has been created. This means that the trustor (the person who establishes the trust) no longer retains control over the trust’s assets and cannot make any changes without the consent of all of the named beneficiaries. One advantage of an ILIT is that it can be used to create a tax-free inheritance for beneficiaries. The proceeds of the life insurance policy are not usually subject to income tax or estate tax, so they can be passed on to the beneficiaries without any tax liability. Additionally, the trust prevents the proceeds from being counted as part of the policyholder’s estate, which helps to reduce estate taxes. Ultimately, an ILIT provides a great way for people to protect their loved ones and ensure that their beneficiaries receive the life insurance proceeds in a timely and cost-effective manner. It is important to note that these trusts are complicated and require the assistance of a qualified estate planning attorney to create.

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What is an irrevocable life insurance trust (ILIT)?

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