ILIT or Irrevocable Life Insurance Trust are commonly used. Often, these trusts are simply being referred to as Irrevocable Insurance Trusts or Irrevocable Trusts. Life insurance is used to pay federal estate taxes because the tax can be paid with discounted dollars. Simply put, the premiums are substantially less than the estate tax.
Informed taxpayers prefer the benefits of using life insurance proceeds to pay taxes.
Irrevocable trusts are irrevocable, they cannot be changed. When it becomes clear that a person needs to purchase a life insurance policy to pay the Federal Estate Tax imposed by death, a problem is created. The problem is the ownership of the Life Insurance policy. If improper ownership occurs, proceeds from the life insurance policy can be included in the assets of the estate. This is were the Irrevocable Trust comes in.