What is an Irrevocable Life Insurance Trust (ILIT)?

An irrevocable life insurance trust is a type of estate planning device that can be used in order to provide a tax-free payment from a life insurance policy to a beneficiary. Here are the basics of the irrevocable life insurance trust and how they work.

Irrevocable Life Insurance Trust

An irrevocable life insurance trust is a type of trust that you can set up and put a life insurance policy into it. Once you do this, you will transfer ownership of the life insurance policy to the trust. By doing this, the life insurance policy is going to be removed from your estate and entered into the trust. The life insurance policy is still going to be based on your life. When you die, the money from the life insurance policy is going to still go to the beneficiary that you designate. The only difference is that the proceeds from the life insurance payout are not going to be counted towards your total estate.

Minimize Taxes

This type of trust is generally used for those that have sizable estates that will be subject to estate tax. By using this trust, all of the money from the life insurance policy will be tax-free and you can take advantage of the estate tax exemption on the rest of your estate.

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