Define: Irrevocable Life Insurance Trust

An Irrevocable Life Insurance Trust (ILIT) is a legal arrangement where a person transfers their life insurance policy into a trust, removing it from their estate for tax purposes and ensuring that the proceeds are distributed according to their wishes.

Setting up an ILIT can help minimize estate taxes, protect the life insurance proceeds from creditors, and provide a structured plan for the distribution of funds to beneficiaries.

No, as the grantor of the trust, you cannot serve as the trustee. It is important to appoint a trustee who will manage the trust and ensure that the terms are followed.

If you pass away before the ILIT is established, the life insurance proceeds will be included in your estate for tax purposes. It is crucial to set up the trust while you are still alive to avoid this.

Once the ILIT is established, it becomes irrevocable, meaning that you cannot make changes to it. Therefore, it is essential to carefully plan and consider all aspects before creating the trust.

While the life insurance proceeds held in an ILIT are generally not subject to income tax, there may be potential estate tax implications. Consulting with a tax professional is recommended to fully understand the tax implications.

Yes, an existing life insurance policy can be transferred into an ILIT. However, it is important to ensure that the transfer is done correctly to avoid any unintended tax consequences.

Yes, you can name yourself as a beneficiary of the ILIT. However, it is important to consider the potential tax implications and consult with an attorney or financial advisor to determine the best approach for your specific situation.

No, borrowing against the life insurance policy held in an ILIT is generally not allowed. Doing so may trigger adverse tax consequences and potentially jeopardize the trust’s integrity.

Dissolving an ILIT can be complex and may have significant tax implications. It is advisable to consult with an attorney or estate planning professional to understand the process and potential consequences before considering dissolution.