An ILIT is a trust that is funded by a life insurance policy or life insurance proceeds. If properly structured, an ILIT can help minimize gift and estate taxes.

Donor (Insured) Creates irrevocable trust Includes Crummey withdrawal provision (allows beneficiaries to withdraw payments made to the trust) Names independent trustee Makes gifts for premium payments Files GSTT and/or gift tax returns, if necessary Reports trust income on personal annual income tax return		Trust Trust or trustee buys and owns policy on life of insured Serves proper Crummey notice to the beneficiaries Pays premiums on policy
		Beneficiaries Do not actually exercise their Crummey withdrawal rights

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Decedent's (Insured's) Taxable Estate (does not include proceeds of insurance policies owned by the ILIT) Executor: Settles estate Pays estate taxes Distributes remaining assets to beneficiaries		Trust Receives proceeds of policy Distributes proceeds according to terms of trust
Taxes paid		Beneficiaries Receive distributions from ILIT free of estate taxes Receive remaining assets from decedent's taxable estate net of estate taxes