The below article is very superficial. For example, although having the trustee originally purchase the insurance is optimal, there are several other ways to transfer the insurance policy into the trust.
Also, ILITs are great for asset protection even if they are never needed for estate tax savings. (And we can never be sure what exemptions will be in the future.)
Finally, for dynastic growth avoiding generation-skipping transfer tax, nothing beats a lifetime gift to a properly drafted irrevocable trust. (Performance is better than with similar trusts created upon death.)
ILITs were designed to avoid taxes on life insurance payouts.
ILIT is an acronym for “irrevocable life insurance trusts.
“Why would you need one?
If your life insurance is included in your estate – and your estate exceeds the applicable estate tax exemption – then any proceeds could be taxed up to 40%.
Not good.
Creating an ILIT to hold the title to your life insurance can enable you to avoid estate taxes on this payout.
Source: What is an ILIT?
