An Overview of Irrevocable Life Insurance Trusts

“By Zach Di Blanda (Touro Law School)

Extern for Wolfson and Klein-Wolfson, PLLC – Fall 2021 


An Irrevocable Life Insurance Trust (ILIT) is a trust that is created to own and control a term or permanent life insurance policy/policies while the insured is still alive. The trust is used to manage and distribute the proceeds that are paid out upon the insured’s death. Under an Irrevocable Life Insurance Trust, the insurance policy is owned by the trust, rather than the person whose life is insured.

An Irrevocable Life Insurance Trust has many benefits. It is a financial planning tool that allows for better asset management and death benefit flexibility.  Creating the trust allows the grantor of the trust to minimize the estate tax, protect assets from creditors, and provide for family members that are either minors, financially irresponsible, or have special needs. As of 2021, in New York State the amount of assets that are exempt from the estate tax is anything up to $5.93 million dollars. An Irrevocable Life Insurance Trust allows the insured to give detailed instructions on how the benefit should be used. Normally, the benefits would be given in one lump sum to the beneficiary, but this trust allows for instructions to be given about the distribution of the funds. These instructions are unique to Irrevocable Life Insurance Trusts which makes this type of trust even more attractive.

Creating an Irrevocable Life Insurance Trust is a straightforward process. They are typically drafted with the help of an attorney. The person creating the trust, the grantor, names a trustee to hold the property according to the terms of the trust agreement that were created. This agreement identifies the beneficiaries and tells the trustee when the assets or property in the trust should be distributed. The trustee is the person who has the responsibility of distributing the assets to the beneficiaries. The trustee has an extremely vital role with critical duties to perform such as intelligently investing and protecting the assets. The trustee should be an individual that can be trusted to make these important decisions. Once all these issues are established, the ILIT is complete.

Overall, the creation of an Irrevocable Life Insurance Trust is a beneficial estate planning option for the client that can help clients save money and plan a safe financial future for their loved ones. If you or your family members are considering establishing an ILIT, they should contact Wolfson and Klein-Wolfson, PLLC of Syosset, New York for a free consultation.

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