Insurance trust

(redirected from Irrevocable Life Insurance Trusts)

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
The authors examine issues related to proper management of irrevocable life insurance trusts, the legal standards of care for such management, and the pitfalls surrounding the taxation of such trusts.
Irrevocable life insurance trusts are generally planned around the type of life insurance policy involved.
The IPS AdvisorPro flexible technology allows users to develop templates for eight unique client types, including individuals, trusts, ERISA plans, foundations and endowments, charitable trusts, and irrevocable life insurance trusts.
The survey adds that irrevocable life insurance trusts (ILITs) are the most popular types of trust administered in-house by advisors.
Among them: irrevocable life insurance trusts, grantor trusts, special needs trusts, testamentary trusts and revocable living trusts.
Beginning with an overview of the major sections of estate planning practice, the volume covers ethics in estate planning, establishing attorney-client relationships, wills, trusts, transfer taxes, non-taxable gifts, credit shelter trusts, marital deductions, irrevocable life insurance trusts, elder law, Medicaid, guardianships, estate administration, and will caveats.
One way to do this is to put life insurance policies inside irrevocable life insurance trusts. The clients can use the $5 million on a new paid-up policy, thus reducing the need for future gifts.
But for those clients who are familiar with irrevocable life insurance trusts or dynasty trusts, buying LTCI through an irrevocable trust can provide multiple benefits.
* Irrevocable Life Insurance Trusts ("ILITs") A common use of irrevocable trusts is to acquire life insurance to provide estate tax liquidity without causing the life insurance to be included in the grantor's gross estate.
Irrevocable life insurance trusts not affected by Chapter 14 valuation rules.
This article is adapted from his book A Practical Guide to Drafting Irrevocable Life Insurance Trusts (Second Edition), ALI/ABA (
Transfers from irrevocable life insurance trusts are potentially subject to the GST tax.