Which statement describes an irrevocable life insurance trust (ILIT) regarding ownership of life insurance?

Which statement describes an irrevocable life insurance trust (ILIT) regarding ownership of life insurance?

• A. It is revocable by the grantor at any time.
• B. It is not used in estate planning.
• C. It cannot own a life insurance policy.
• D. It owns a life insurance policy to remove proceeds from the estate for tax purposes.

Answer: (D)

An irrevocable life insurance trust works by having the life insurance policy owned by the trust rather than by the individual. With the trust as owner, the policy’s death benefit is not part of the grantor’s estate, which helps reduce estate taxes and provides liquidity to beneficiaries. Premiums are paid into the trust with gifts from the grantor, and the trust’s irrevocable nature means the grantor cannot later reclaim ownership. ILITs are a common estate planning tool precisely for this reason: they own the policy to remove the proceeds from the estate for tax purposes. The idea that the trust is revocable, or that it cannot own a policy, or that it isn’t used in estate planning, does not fit with how ILITs function.

An irrevocable life insurance trust works by having the life insurance policy owned by the trust rather than by the individual. With the trust as owner, the policy’s death benefit is not part of the grantor’s estate, which helps reduce estate taxes and provides liquidity to beneficiaries. Premiums are paid into the trust with gifts from the grantor, and the trust’s irrevocable nature means the grantor cannot later reclaim ownership. ILITs are a common estate planning tool precisely for this reason: they own the policy to remove the proceeds from the estate for tax purposes. The idea that the trust is revocable, or that it cannot own a policy, or that it isn’t used in estate planning, does not fit with how ILITs function.