Life Insurance Trust (ILIT)
With proper planning, life insurance can simultaneously increase the size of the gross estate passing on to your children, pay all or most death taxes owed to the state or federal governments, and allow significantly more inheritance to pass through your estate completely tax free.
All of the above is accomplished through the creation and funding of a life insurance trust or ILIT, (ie, an irrevocable, non-amendable trust which is both the owner and beneficiary of one or more life insurance policies). Generally, it is preferable for the ILIT to be formed and funded before the purchase of the life insurance policy in order for the tax advantages to become immediately available. Nevertheless, clients with large, existing policies who are in good health and have no reason to believe that they will die in the next three (3) years may wish to consider transferring existing policies over to an ILIT.