The irrevocable life insurance trust can bring about large estate tax savings for those clients with substantial estates, especially when the need for liquidity is equally great.
At the insured's death, ILIT policy proceeds are paid to the trustee (as the beneficiary). The provisions of the trust usually give the trustee the discretion to purchase assets from, or loan money to, the estate of the decedent. This technique gets cash from the trust to the estate administrator to pay estate settlement costs, without the policy proceeds being recognized as estate assets. As noted earlier, though, if the estate administrator simply uses the policy proceeds to pay estate settlement costs (without getting something in return), the proceeds so used will be treated as estate assets.
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