Used primarily for estate creation, estate preservation, and estate conservation. Basically, a irrevocable trust is drafted (meaning drafted, designed, and created by a licensed JD professional aka a lawyer and/or attorney) to hold a LARGE life insurance policy on the insured (usually a parent(
s), or the spouses parent(s), and upon materialization of the death certificate, the ILIT receives the death benefit insurance proceeds tax
free!!! Yes, that's right, tax
free! Most the
time insurance proceeds are tax
free, but there's the exemption limit, so even if the death benefit is
WELL OVER the current exemption limit, the entire thing is passed tax
free to the trust. The trust itself then has beneficiaries who receive the proceeds in accordance with the trusts design and instructions.
Irrevocable Life Insurance Trust , ILIT --- Basically, a
child (grown up in this example) decides he'd/she'd like to after college, get a good
job, and use his/her income (or some of it) to purchase a LARGE life insurance policy on his/her parents, and place it in a Irrevocable Life Insurance Trust, ILIT. Then upon materialization of the death certificate, the
child is then passed tax free TONS of dinero! Then the
child can take it easy, retire, and live off of e.g investments of any kind, perhaps treasury inflation protected securities.
