Irrevocable Life Insurance Trust (ILIT)
A type of trust that owns a life insurance policy, removing the policy's death benefit from the insured's taxable estate while providing estate liquidity and tax-free wealth transfer.
Understanding Irrevocable Life Insurance Trust (ILIT)
An ILIT is used to remove life insurance proceeds from an estate to avoid estate taxes on large policies. The trust owns the policy, pays premiums, and receives the death benefit upon the insured's death. Because the trust owns the policy (not the insured), the death benefit is not included in the insured's estate. ILITs are particularly useful for high-net-worth individuals who want to use large IUL policies for estate planning.
Why This Matters for Retirement: Understanding Irrevocable Life Insurance Trust (ILIT) is essential for making informed decisions about tax-free retirement income strategies. Whether you are evaluating an IUL policy, planning Roth conversions, or comparing retirement vehicles, this concept directly affects your outcomes.