Irrevocable Life Insurance Trust

What Is an Irrevocable Life Insurance Trust?

An irrevocable life insurance trust — often called an ILIT — is a trust specifically designed to hold your life insurance policy. Once you transfer your policy into the trust, it's no longer considered part of your estate. That's a big deal when it comes to taxes and protecting those proceeds for your family.

The key word here is "irrevocable." Unlike a revocable living trust, you can't change or take back an ILIT once it's set up. But that's exactly what gives it its power. Because the settlor no longer technically owns the policy, the death benefit isn't included in their gross estate for estate tax purposes.

Who Needs an Irrevocable Life Insurance Trust?

If you have a sizable life insurance policy and your estate could be subject to estate taxes, an ILIT can help ensure that more of your money goes to your beneficiaries — not to the government. It's also useful for people who want to make sure their life insurance proceeds are managed responsibly by a trustee, especially if beneficiaries are young or not experienced with managing money.

An ILIT can also provide liquidity for your estate. If most of your wealth is tied up in real property or a business, the life insurance proceeds held in the trust can help your family cover expenses, pay creditors, and handle estate taxes without having to sell assets at a loss.

You might also consider pairing an ILIT with a spendthrift provision to protect the proceeds from your beneficiaries' creditors after the funds are in trust.

Working With The Taormina Firm

Setting up an ILIT involves some specific legal and tax considerations, so it's not something you want to DIY. Vince walks you through the process step by step, making sure the trust is structured correctly, that the funding is handled properly, and that you understand how it works within your broader estate plan. It's one of those planning tools that can make a huge difference for the right family.