Irrevocable Life Insurance Trust

What Does Irrevocable Life Insurance Trust Mean?

Establishing an irrevocable life insurance trust (ILIT) creates an entity to manage a life insurance policy and distribute its proceeds, typically upon the policyholder’s death. These trusts are primarily set up to exclude the proceeds from estate taxation.

Insuranceopedia Explains Irrevocable Life Insurance Trust

An ILIT is termed irrevocable because, once it is legally established, its terms cannot be changed.

If the policyholder acts as a trustee, they may have the ability to amend the terms. However, if the ILIT is created to avoid estate taxes, it is advised that the policyholder not serve as a trustee. This helps ensure that the policy is not considered part of the policyholder’s taxable estate.

The policyholder determines how the trustee will distribute the policy’s proceeds and the mode of payment to be used. Once the trust is established, it becomes the official owner of the policy.