Irrevocable Life Insurance Trust (ILIT)
Terms related to the financial mechanics, value, and tax treatment of policies.
What Is Irrevocable Life Insurance Trust (ILIT)?
An irrevocable life insurance trust (ILIT) is a legally established trust that owns a life insurance policy, removing the death benefit from the insured's taxable estate. Because the trust is irrevocable, the insured cannot serve as trustee or reclaim ownership of the policy. When the insured dies, the proceeds are paid to the trust — outside the estate — and distributed to beneficiaries according to the trust terms, potentially free of estate taxes. ILITs require annual "Crummey" notices to beneficiaries for premium gifts to qualify for the gift tax annual exclusion. ILITs are complex instruments best established with assistance from an estate planning attorney.
Nevada Context
Nevada's favorable trust laws and lack of state estate tax make it an attractive jurisdiction for ILIT planning. Nevada Spendthrift Trust Act provisions can provide additional creditor protection for trust beneficiaries.
How It Affects You
If your estate may be subject to federal estate taxes, an ILIT can effectively exclude life insurance proceeds from the taxable estate, significantly reducing the estate tax burden on your heirs.
Irrevocable Life Insurance Trust (ILIT) in Practice
A Nevada physician with a $12,000,000 estate places a $3,000,000 second-to-die policy in an ILIT; the illustrative $3,000,000 death benefit passes to the trust tax-free, outside the estate, providing heirs with liquidity for estate taxes.
Dollar amounts shown are illustrative. Actual amounts vary by carrier, applicant age, health status, and individual underwriting.
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