ILIT (Irrevocable Life Insurance Trust)
An irrevocable trust that owns a life insurance policy. Because the trust (not you) owns the policy, the death benefit is not included in your taxable estate. This can save significant estate taxes for high-net-worth individuals.
Legal Definition
An irrevocable trust established to own and be the beneficiary of one or more life insurance policies on the grantor's life, removing the policy proceeds from the grantor's gross estate for federal estate tax purposes under IRC ยง2042.
Practical Example
To keep a $5 million life insurance policy out of her taxable estate, Sarah creates an ILIT. The trust owns the policy, and she makes annual gifts to the trust (using Crummey powers) to pay the premiums. When she dies, the $5 million goes to the trust beneficiaries estate-tax-free.