What is an Irrevocable Life Insurance Trust and how can it help my estate planning?

An Irrevocable Life Insurance Trust (“ILIT”) is a Trust that holds a life insurance policy on the life of the Grantor (you and/or your spouse) and if the ILIT is properly structured, the life insurance proceeds will not be includable in your taxable estate. The trustee of the ILIT will purchase the life insurance held on your life. The ILIT will allow you to determine how and when life insurance proceeds will be paid to the next generation (instead of naming the children as the outright beneficiaries of a life insurance policy), while having the proceeds excluded from your gross estate. Also, the life insurance held in the ILIT can be used to create liquidity in your estate to pay your estate tax liability and avoid selling illiquid assets (most likely for less than FMV) held in your estate to pay your estate tax liability.

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