What is an irrevocable life insurance trust (ILIT)?

An irrevocable life insurance trust (ILIT) is a legal arrangement used in the state of Pennsylvania to hold a life insurance policy for the benefit of a third party. This type of trust is often used to minimize the taxation of a life insurance payout, as well as in estate planning. The ILIT is a trust with an irrevocable beneficiary who cannot be changed, so it is important to ensure that the correct beneficiary is chosen when the trust is set up. The trust holds the life insurance policy for the beneficiary’s benefit. It is usually funded with premiums paid by the grantor, or the person setting up the trust. The trust can use income from the premiums to pay the life insurance premiums and to meet the beneficiary’s needs. The trust can be used to provide for a beneficiary’s needs in the case of the grantor’s death. It can also be used to avoid a long and tedious probate process to gain access to the insurance payout. When the policy pays out, the proceeds are distributed to the trust and held in the trust for the benefit of the beneficiary. This type of trust is subject to taxation, so it is important to consult a lawyer to ensure that the trust is set up properly. Overall, an irrevocable life insurance trust (ILIT) is a legal arrangement designed to protect the beneficiary of a life insurance policy and to minimize the taxation of the life insurance payout.

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What is an irrevocable life insurance trust (ILIT)?

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