An ILIT is an irrevocable trust created to own certain life insurance policies outside of your estate. You, as the grantor, create  the ILIT, which owns your policy. You do not maintain control over the policy and your selected Trustee is effectively the owner.

 As you are no longer the owner of the policy the death benefit is outside of your estate for tax purposes. You (grantor) remain the insured, which means your death triggers the death benefit being paid to the trust.

The Trustee(s) of your ILIT must:

• • • maintain the policy
    • manage an ILIT checking account
    • accept gifts from you for the premium payments
    • provide notice to the lifetime beneficiaries of the gift and their right to withdrawal the gift
    • timely pay the premium each year
    • at your death, collect the life insurance proceeds and distributes the proceeds in accordance with the ILIT’s terms.

ILITs are used to solve for the goal of reducing estate taxes and providing liquidity, to ensure the most amount of money passes to your beneficiaries. The amount of insurance that may motivate someone to create an ILIT can vary depending on the circumstances. But typically the death benefit amount is either: large enough to create a Massachusetts estate tax ($1m+), large enough to further increase an already Massachusetts taxable estate ($1+m), and/or large enough to further increase a federally taxable estate ($11.2m for an individual or $22.4m for a married couple) where beneficiaries are at risk of losing up to 56% of the death benefit proceeds to federal (40%) and MA (16%) estate taxes.

If you are not concerned with tax planning and already have liquidity in your estate, then you may not benefit from an ILIT.