Once the life insurance policy is placed in the trust, the insured person no longer owns the policy, which will be managed by the trustee on behalf of the policy beneficiaries when the insured person dies.
The insurance trust, or irrevocable life insurance trust (ILIT), is often used to set aside cash proceeds that can be used to pay estate taxes, as the life insurance policy should be exempt from the taxable estate of the decedent.
One catch on the insurance trust is that the life insurance policy must be transferred to the trust at least three years before the death of the insured. To get around this rule, a new policy can be taken out with a spouse as owner, then placed in the trust.
As an irrevocable trust, changes can only be made by beneficiaries; the owner gives up all control to the trustee. If the size of the taxable estate is below the maximum exclusion figure, it is generally not necessary to set up an insurance trust; in this case the life insurance will be included in the decedent’s taxable estate.
Investment dictionary. Academic. 2012.
Look at other dictionaries:
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life insurance trust — A trust set up to own a life insurance policy, so that the policy proceeds arent subject to estate tax when the original policy owner dies. Life insurance trusts are usually irrevocable. Category: Wills, Trusts & Estates → Estate Tax Nolo’s Plain … Law dictionary
irrevocable life insurance trust — (ILIT) See: life insurance trust Category: Wills, Trusts & Estates → Estate Tax Nolo’s Plain English Law Dictionary. Gerald N. Hill, Kathleen Thompson Hill. 2009 … Law dictionary
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