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What is an Irrevocable Life Insurance Trust?

An Irrevocable Life Insurance Trust, or ILIT, is a trust specifically designed to own and be the beneficiary of one or more life insurance policies. Once an ILIT is set up and a life insurance policy is transferred into it, the trust itself becomes the owner of the policy. This means that upon the insured’s death, the policy’s death benefit is paid directly to the trust, not to the estate of the deceased, thus avoiding probate and inclusion in the taxable estate.

The primary purpose of an ILIT is to manage and distribute the proceeds of a life insurance policy according to the terms set out by the grantor (the person who establishes the trust). It allows for direction over how and when beneficiaries receive the death benefit, while also offering potential tax advantages and asset protection benefits.

Advantages of Having an Irrevocable Life Insurance Trust

Creating an ILIT can offer several benefits, particularly from an estate planning and tax perspective, including:

Estate Tax Reduction 

Because the life insurance policy is owned by a trust, not the individual, it may not included in the estate for estate tax purposes. This can result in significant tax savings, particularly for high-net-worth estates. For life insurance that you already own, the insured must live at least three years following the transfer of an existing policy to one of these irrevocable trusts, otherwise, the death benefits would be included in the estate of the insured. If you are considering the purchase of life insurance, it may be beneficial to have the trust purchase it from the get-go for this way the three-year rule does not apply.

Asset Protection

Until distributed, the assets within the ILIT are generally protected from the beneficiaries’ creditors, lawsuits, and divorces, ensuring that the funds reach the intended recipients.

Control Over Distribution

The grantor can set specific terms within the ILIT, stating how, when, and to whom the proceeds will be distributed. This is especially helpful for beneficiaries who may not be financially responsible and for ensuring that minor children receive their funds in a structured fashion.

Avoidance of Probate

Because the proceeds of the insurance policy are paid directly to the trust, they bypass the probate process, providing immediate funds for estate expenses and/or to beneficiaries without the delay and public scrutiny involved in probate.

How Our Skilled Trust Attorneys Can Help You Establish an ILIT

At Surprenant & Beneski, P.C., our team of experienced trust attorneys understands the intricacies of Massachusetts state laws and how they pertain to ILITs. Establishing an ILIT involves several critical steps and decisions, from selecting the right type of insurance policy to drafting and reviewing the trust document to ensure the proper transfer of the policy into the trust.

Our attorneys can guide you through the entire process, making certain that:

  1. The ILIT is properly structured to meet your specific estate planning goals.
  2. The trust document reflects your wishes accurately. 
  3. The ILIT is in full compliance with Massachusetts state laws.
  4. The transfer of the life insurance policy into the trust is executed correctly to avoid unintended tax consequences.

Contact Our Experienced Trust Attorneys Now

By partnering with Surprenant & Beneski, P.C., you can be sure that your Irrevocable Life Insurance Trust will be customized to meet your needs and goals specifically and effectively.  In this matter, as in all aspects of your estate planning, our attorneys have the know-how and creative insight to help you navigate. Once you contact us and become our client, you will have the reassurance that comes from knowing that your assets and your loved ones are being protected by capable, caring professionals.