Irrevocable Life Insurance Trusts (ILITs)

If you have assets that are subject to estate taxes and you would prefer to keep your estate intact for your heirs, you can obtain insurance which is paid outside your estate (therefore not increasing the amount subject to estate taxes) and your trustee can use the monies to pay estate taxes therefore leaving your estate intact. If possible, you should establish the trust before purchasing the insurance. If the trust purchases the insurance and you died shortly thereafter, the insurance proceeds would not be included in your estate. If, however, you established the trust and transferred an existing policy into the trust, you must survive the transfer for a period of three years or the gift will be considered in contemplation of death and subject to a three year waiting period.