How is an Irrevocable Life Insurance Trust Established?
A person with assets that exceed the federal exclusion amount will establish a trust. We call the person who establishes the trust the “settlor”. It is important to keep in mind that although the settlor may already have a living trust, the new life insurance trust is a separate, irrevocable trust. If the settlor acts as trustee of the life insurance trust, the value of the assets held by the trust will be brought back into the settlor’s taxable estate at death. Therefore, the settlor will name another person to act as trustee of the life insurance trust. The settlor will designate beneficiaries of the trust, and will specify when, and under what terms, each beneficiary will receive his or her share of the trust following the settlor’s death. The trustee will apply for a life insurance policy on the settlor’s life. This policy could be on the life of the settlor alone or, if the settlor is married, it may be a second-to-die policy on the life of the settlor and his or her spouse. While
