Insurance trust

(redirected from Irrevocable Life Insurance Trust)
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Insurance Trust

An irrevocable trust set up by a policyholder in which he/she places his/her life insurance policy. This removes the policy from the policyholder's estate, shielding it from estate taxes. Importantly, the insurance trust must be set up at least three years prior to the death of the policyholder in order to exclude it from the estate. One might set up an insurance trust in order to set aside cash to pay estate taxes otherwise owed, or to provide for the policy's beneficiaries without concern for the tax. Normally, one sets up an insurance trust when one expects to have an estate worth more than the maximum exclusion figure. It is also called an irrevocable life insurance trust.

Insurance trust.

You set up an insurance trust to own a life insurance policy on your life. When you die, the face value of the policy is paid to the trust.

That keeps the insurance payment out of your estate, while making money available to the beneficiary of the trust to pay any estate tax that may be due, or to use for any other purpose.

If you're married, you may set up an insurance trust to buy a second-to-die policy, which pays the face value of the policy at the death of the second spouse. That allows the first to die to leave all assets to the other, postponing potential estate tax until the survivor dies. At that point, the insurance benefit is available to pay any tax that might be due.

References in periodicals archive ?
Traditionally, an Irrevocable Life Insurance Trust was a strategy that used life insurance to pay for projected estate taxes upon death.
Historically, management responsibilities of an irrevocable life insurance trust consisted primarily of sending Crummey notices and paying policy premiums.
BOSTON, May 26, 2011 /PRNewswire/ -- The John Hancock Life Insurance Advanced Markets Group has introduced a JH Solutions module to help clients take advantage of historically low insurance rates and use arbitrage to pay premiums on an Irrevocable Life Insurance Trust (ILIT).
Also, people who use an irrevocable life insurance trust must by law live three years after assigning the policy in order for the trust to be outside of an estate, Carter said.
It appears that these rules would govern so-called "private" split dollar plans between the insured donor and the donor's irrevocable life insurance trust, where the "loan" regime is applicable.
I suggested they buy a `second-to-die' life insurance policy," he says, "one that would pay off after both of their deaths, and have the owner create an irrevocable life insurance trust to avoid estate taxes.
entered into a split-dollar plan (a way to pay for life insurance) for a $3 million second-to-die life insurance policy (on the lives of Joe and his wife) to be owned by an irrevocable life insurance trust (ILIT).
Have you used an irrevocable life insurance trust to prevent life insurance proceeds
Create a grantor irrevocable life insurance trust (ILIT) funded with annual exclusion or lifetime exemption gifts.
Gifts to an irrevocable life insurance trust (ILIT) can both reduce the size of the grantor's estate and increase the amount of wealth passing to heirs via the life insurance death benefit, which may significantly exceed the total amount of gifts.
Should an irrevocable life insurance trust be set up to hold the life insurance and remove it from the taxable estate?