ILIT

An ILIT, or irrevocable life insurance trust, is a specialized type of trust designed to own and manage a person’s life insurance policy outside of the person’s estate. The purpose of an ILIT is to prevent the proceeds of a life insurance policy from being subject to the policyholder’s estate tax.

Although life insurance is income tax-free, it is subject to estate taxes. An ILIT allows people to have those life insurance assets exist outside of their taxable estate. ILITs are often structured to provide liquidity for the estate, in order to keep assets within the family to provide cash to pay the estate tax.