Life insurance is an important part of your financial security. Unfortunately, a large life insurance policy that is included in your estate for estate tax purposes can increase your estate tax obligation upon death. The Irrevocable Life Insurance Trust (ILIT) can solve this issue. An irrevocable trust is formed with someone other than the insured as trustee. The beneficiaries can be a spouse or other family members. The trust applies for the insurance and is the owner and beneficiary of the policy. Each year the insured makes a gift to the trust using his or her annual gift tax exclusion. The trustee receives the gift, gives notice to the beneficiaries and then uses the gift to make the premium payment on the policy. Upon the insured’s death, the proceeds of the policy are paid to the trust and then held or distributed pursuant to the terms of the trust. If drafted and implemented correctly, the assets of the trust are excluded from the insured’s estate.
How To Revoke An Irrevocable Trust