Full Definition
An Irrevocable Life Insurance Trust (ILIT) is an estate planning tool where a trust — not the individual — owns a life insurance policy. Because the trust is irrevocable and the insured has no incidents of ownership, the death benefit is excluded from the insured's taxable estate. ILITs are commonly used by UHNW families to provide estate tax liquidity (the death benefit can pay estate taxes without requiring liquidation of illiquid assets), fund wealth transfer strategies, and protect life insurance proceeds from creditors. Proper administration requires Crummey notices for annual premium gifts.
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