What is an ILIT? Irrevocable Life Insurance Trust

What is the purpose of an ILIT Trust: The purpose is to remove life insurance proceeds out of the estate of the deceased and as suchto reduce the estate taxes.  The ILIT is an irrevocable life insurance trust.  Irrevocable Life Insurance Trusts (ILITs) are planning tools used to keep life insurance proceeds outside of the taxable estate.  If created, funded and maintained propoerly an insurance policy owned by an ILIT will NOT be included in the insured’s estate.  Here are the steps:

1. Create the ILIT.
2. Make a gift to the ILIT.
3. The ILIT then buys the insurance policy.  The ILIT is the owner and beneficiary of the policy.

Or, you can do ##1-2 above and TRANSFER an existing policy into the ILIT but to be effectibe the insured can not die before three years after the transfer.  The distribution of the proceeds will then be per the terms/directions of the ILIT trust.