When setting up an ILIT, the grantor can place a life insurance policy inside the trust. This means that the trust owns the policy, not the grantor. It can be a new policy or existing policy, but there can be some additional tax challenges for existing policies with a large cash value.
Putting the life insurance policy in the trust can remove it from the grantor's personal assets. As an irrevocable trust, once the life insurance is owned by the trust, you can't take it back. But this also means that, if you pass away and the life insurance policy makes a substantial payout, the payout goes to the trust, excluding it from your estate. For large estates, this can lead to major tax savings when passing on assets to heirs.
The trustee is responsible for managing payouts to the beneficiaries. This person can ensure a young heir doesn't squander his or her inheritance, while ensuring the grantor's wishes are followed.
In addition to the tax benefits and ability to put a trusted person in charge, a trust also adds privacy to an estate settlement, as trusts don't have to be approved through the public probate process by a judge.