What is an irrevocable life insurance trust (ILIT)?

An irrevocable life insurance trust (ILIT) is an estate planning tool used in Virginia that allows a person to give away life insurance proceeds in the most tax efficient manner. The ILIT helps protect the proceeds from estate taxes and aids in keeping them out of the hands of creditors. An ILIT is an irrevocable trust, which means the grantor (the person creating the trust) cannot revoke or modify it at any time. When a person establishes an ILIT, he or she is typically the grantor and once the trust is created, life insurance proceeds will go to the Trustee of the ILIT when the insured dies. The Trustee then distributes the proceeds according to the instructions of the grantor. The grantor is also usually the beneficiary of the ILIT, so the proceeds can then be used for his or her benefit. One of the major advantages of an ILIT is that the life insurance proceeds are not included in the grantor’s estate when he or she passes away, so the proceeds are not subject to estate taxes. This means the grantor’s beneficiaries and heirs will receive more of the proceeds from the life insurance policy. Additionally, the ILIT also ensures that creditors cannot seize the life insurance proceeds if the grantor has to file bankruptcy. Overall, an ILIT is a powerful estate planning tool that allows a person to pass on life insurance proceeds in an efficient manner. By setting up an ILIT, a person’s beneficiaries and heirs can potentially save a significant amount of money in taxes and can be sure that the life insurance proceeds will go to the intended beneficiaries.

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What is an irrevocable life insurance trust (ILIT)?

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