What Does Irrevocable Life Insurance Trust (ILIT) Mean?
Establishing an irrevocable life insurance trust (ILIT) creates a body to manage one's life insurance and distribute its proceeds when the time comes to do so, usually after the policyholder's death. These trusts are established mostly to exempt the proceeds from estate taxation.
Insuranceopedia Explains Irrevocable Life Insurance Trust (ILIT)
It is called irrevocable because, once ILIT is legitimately created, its terms can no longer be changed.
If the owner is part of the trustee, they can amend the terms. It is advised, however, that if an ILIT is created for the purposes of avoiding estate taxes, the policyholder should refrain from being a trustee so that the policy will not be considered an asset and will, therefore, be subject to taxation.
The policyholder dictates how the trustee will distribute the proceeds from the policy and what mode of payment will be used. Once the trust is established, it becomes the official owner of the policy.