Legal structure
Irrevocable Life Insurance Trust (ILIT)
An irrevocable trust designed to own and be the beneficiary of life insurance on the grantor's life.
Typical purpose
To keep insurance proceeds outside the taxable estate and manage them for beneficiaries.
How it operates
Trustee owns the policy, receives premium gifts, and administers proceeds.
Who might use it
Individuals with significant insurance or estate liquidity needs.
Assets commonly involved
- ◆Life insurance policies
- ◆Cash for premiums
Potential advantages
- ◆Potential estate tax exclusion
- ◆Managed proceeds
Legal and tax limitations
- ◆Three-year rule for transferred policies
- ◆Crummey notices often required
Establishment & administration
- ◆Irrevocable agreement
- ◆Independent trustee
- ◆Premium funding process
Common mistakes
- ◆Skipping Crummey notices
- ◆Grantor paying premiums directly
Questions to ask a professional
- ◆Which state's law should govern this arrangement, and why?
- ◆Who should serve as trustee and successor trustee?
- ◆How will the trust be taxed at the federal and state level?
- ◆What assets must be retitled, and who handles the transfers?
- ◆What ongoing records, filings, and reports will be required?
Educational information only. Trust law varies by state; consult qualified legal, tax, and financial professionals before acting.
Next step
Move from understanding to a properly reviewed plan.
Discuss a Irrevocable Life Insurance Trust (ILIT) With TangierEducational information only. Not legal, tax, or investment advice.