What Does Insurance Trust Mean?

Also called an irrevocable life insurance trust (or in short, ILIT), as its names suggest, the term refers to an unalterable trust incapable of being revoked. The trust is based on a life insurance contract, and makes it possible for the founder of the contract to release an asset from the category of taxable property.

After entrusting the life insurance contract to the trustee, the insured client is no longer the owner of the policy; the trustee will have total control over it. Upon the insured person’s death, the contact will be dealt entirely by the trustee, obviously in the name of the beneficiaries.

The reason why insurance trust is so common is to eliminate taxes payable for properties. This is possible because life insurance contracts are untinged from the taxable property of the deceased person.

Insurance Trust Explained

There are certain restrictions concerning the insurance trust. One of them is that the life insurance contract must be entrusted to the trustee three years before the insured person dies; otherwise the trust is not valid.

Being an unalterable trust, it cannot be changed, although it is possible for the beneficiaries to make some minor alterations.