Irrevocable Life Insurance Trust

Irrevocable Life Insurance Trust

by Richard C. Wilson & Family Offices Group Association Team

Family Office Definition: Irrevocable Life Insurance Trust

Irrevocable Life Insurance Trust definition:  (ILIT) is a trust funded with proceeds from a life insurance policy. The amount of the life insurance policy is exempt from estate taxes of both the grantor and surviving spouse’s estate. The trust is the beneficiary of the life insurance policy, and the heirs are beneficiaries of the trust.  The three-year rule applies so the trust must be created at least more than three years before death to avoid estate  taxes. As the name implies, these trusts are irrevocable (not modifiable).  Gifts of the insurance policy or cash to pay insurance premiums will be taxed as gifts, unless Crummey powers are included in the trust agreement (qualifying annual gift exemptions). The grantor is responsible for income taxes for the trust and gift taxes for amounts that exceed the annual exclusion or lifetime credit.

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