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Norwood Estate Planning Lawyer > Blog > Estate Planning Attorney > Does An Irrevocable Life Insurance Trust (ILIT) Make Sense For My Estate Plan?

Does An Irrevocable Life Insurance Trust (ILIT) Make Sense For My Estate Plan?


Life insurance can be part of estate planning. As simply explained by the National Association of Insurance Commissioners (NAIC), “life insurance provides financial protection for loved ones should the policyholder die.” There are some circumstances in which it may be advisable to put a life insurance policy into a type of trust called an irrevocable life insurance trust (ILIT). Is it the right choice for you and your family? In this article, our Norwood estate planning attorneys answers the question by highlighting the key things to know about ILITs.

Background: What is an ILIT? 

Simply explained, an ILIT is a specialized type of trust that is created to hold a life insurance policy. When the person who is insured by the policy passes away, the proceeds are then transferred directly to the ownership of the trust. They are not part of the estate of the beneficiary. As the name indicates, this type of trust is irrevocable. It cannot be altered.

Why Does Anyone Ever Form an Irrevocable Life Insurance Trust? 

An Irrevocable Life Insurance Trust (ILIT) offers two main benefits that make it an attractive estate planning tool for some individuals. The first benefit is the potential tax savings. By placing a life insurance policy in an ILIT, the policy’s death benefit is not included in the estate of the insured. As a result, the estate may be able to avoid estate taxes that would otherwise apply. Other taxes, such as the gift tax, could also be avoided.

The second benefit is asset protection. Because the ILIT owns the policy, the policy’s cash value is protected from creditors and can be shielded from lawsuits and bankruptcy proceedings. This can be particularly valuable for individuals in high-risk professions or those with significant assets.

Does Everyone Need to Put Life Insurance Policies into an Irrevocable Trust? 

No, not everyone needs to put their life insurance policies into an irrevocable trust. While there are potential tax benefits and asset protection advantages to doing so for some, there are also some notable downsides for others. For example, if an individual wants to maintain control over their life insurance policy, they may not want to transfer ownership to a trust. Beyond that, an ILIT may not make sense for those with smaller estates that do not exceed the estate tax exemption limit. There may only be costs with no real benefit. An experienced estate planning attorney can help evaluate your circumstances and determine whether an ILIT is appropriate. 

Contact Our Massachusetts Estate Planning Lawyer for Personalized Guidance and Support

At Fisher Law LLC, our Massachusetts estate planning attorneys are committed to delivering reliable, detail-driven legal guidance and support to clients. If you have any specific questions or concerns about ILITs, we can help. Give us a phone call now or connect with us online to set up your fully private, no obligation consultation. From our Norwood law office, we are well-positioned to provide estate planning representation in Norfolk County and throughout the Greater Boston area.



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