Irrevocable Life Insurance Trust (ILIT)

An Irrevocable Life Insurance Trust (ILIT) is a trust primarily set up to hold one or more life insurance policies. The main purpose of an ILIT is to avoid federal estate tax. If the trust is drafted and funded properly, your loved ones should receive all of your life insurance proceeds, undiminished by estate tax.  

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How It Works

How It Works

The Key Is Ownership

Generally, all the property you own at your death is subject to federal estate tax. The important point is that estate tax is imposed only on property in which you have an ownership interest; so if you don't own your life insurance, the proceeds will generally avoid this tax. So, who should own your life insurance? For many, the answer is an ILIT (pronounced "eye-lit").

Because an ILIT is an irrevocable trust, it is considered a separate entity. If your life insurance policy is held by the ILIT, you don't own the policy — the trust does.

You name the ILIT as the beneficiary of your life insurance policy. Your family will ultimately receive the proceeds because they will be the named beneficiaries of the ILIT. This way, there is no danger that the proceeds will end up in your estate. This could happen, for example, if the named beneficiary of your policy was an individual who dies, and then you die before you have a chance to name another beneficiary. Because you don't own the policy and your estate will not be the beneficiary of the proceeds, your life insurance will escape estate taxation.

CAUTION: Because an ILIT must be irrevocable, once you sign the trust agreement, you can't change your mind; you can't end the trust or change its terms. 

The data is provided by Forefield, a division of Broadridge Investor Communication Solutions, an information data provider. The data is for information purposes only and is not an endorsement of any security, mutual fund, sector or index. The information contained on this page is from third-party sources and, although deemed to be reliable, is not guaranteed as to accuracy or completeness by BancorpSouth Asset Management & Trust.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2013

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