ILIT
Irrevocable life insurance trust owns life insurance on the grantor (or grantor and spouse). Proceeds excluded from taxable estate if no retained incidents of ownership and three-year transfer rule avoided.
| Facet | Detail |
|---|---|
| Also called | Irrevocable life insurance trust, insurance trust |
| A-B / A-B-C role | None — liquidity for estate tax or inheritance |
| When created | During life; policy applied for or transferred to trust |
| Revocable | No |
| Inter vivos / testamentary | Inter vivos |
| Typical beneficiaries | Spouse and/or descendants |
| Primary purpose | Estate liquidity; estate-tax-free death benefit |
| Marital deduction | No |
| Uses estate exclusion | Removes policy and often premiums from estate if structured correctly |
| In survivor's estate | No — if no incidents of ownership |
| Basis step-up | N/A — insurance proceeds income-tax-free |
| Income tax | Grantor trust common — grantor pays tax on trust income |
| Crummey powers | Yes — typical for annual-exclusion premium gifts |
| GST / dynasty | May allocate GST exemption to trust |
| Spendthrift | Yes for beneficiaries |
| See-through (IRA) | N/A — holds insurance, not IRA |
| Key tradeoff | Estate tax leverage vs Crummey admin and irrevocability |