What are an ILIT's components?

Irrevocable life insurance trusts (ILIT's) are used to:

• create an estate for heirs using life insurance
• shield life insurance payouts from estate tax
• replace assets given to charities or placed in IIOT's (Irrevocable Income Only Trusts)

People often make the mistake of naming their estate as the beneficiary of their life insurance policy. This makes the proceeds of the policy, known as the death benefit, part of the taxable estate. A simple way to avoid estate tax issues is to transfer life insurance policies into an irrevocable life insurance trust. The value of the insurance remains outside your taxable estate, but you can still name beneficiaries for the trust. ILIT's can help replace assets donated to charities or place in IIOT's by providing a lump sum payment to the trust when you pass on.

There are three components in an irrevocable life insurance trust, similar to those found in a living trust:

1. Trust makers, who control their ILIT's through their instructions
2. Trustees and their successor trustees, named by the trust makers
3. Beneficiaries and contingent beneficiaries, named by the trust makers

Who buys the life insurance on my life or my partner/spouse's and my lives?

The life insurance is purchased by the ILIT's trustees.

Can I or my partner/spouse be a trustee?

A third-party, independent trustee should be named in order to keep proceeds out of your taxable estate.