An Irrevocable Insurance Trust, commonly known as an Irrevocable Life Insurance Trust (ILIT), is a legal document designed to hold a life insurance policy without the client being the owner. Instead, the trustee owns the policy. Key features of an ILIT include:
The client sets up the trust, and the trustee applies for life insurance.
The client contributes funds to pay the premium.
The trust is irrevocable, and the client does not retain control over it.
At the client's death, the policy pays off, and the funds go into the trust without being considered part of the client's estate for tax purposes. This arrangement creates a fund to pay estate taxes while keeping the policy proceeds separate from the taxable estate.