Irrevocable Life Insurance Trust for Married Individual
(Trusts for Spouse and Children) (IL)

Summary

This template is an irrevocable life insurance trust (ILIT) for a married individual to hold one or more insurance policies on the life of grantor in Illinois. This template contains practical guidance, drafting notes, alternate clauses, and optional clauses. This instrument may be used for the benefit of the surviving spouse and descendants. It is most suitable for clients who may have a taxable estate and who desire to provide for their surviving spouse and descendants with the proceeds of the insurance policies transferred to the trust. An ILIT is an irrevocable trust established to be the beneficiary of a life insurance policy. If the premiums are gifted to the trust, then the life insurance proceeds will not be included in the grantor's estate for federal estate tax. There is a common misconception that life insurance proceeds are not subject to federal estate taxes. While the proceeds are free from income tax, they are countable as part of the grantor's taxable estate. An ILIT can be created specifically for the purpose of owning the grantor's life insurance policy. The ILIT holds the policy outside of the grantor's estate, and keeps the proceeds from being taxable to the grantor's estate. The proceeds can then be used to provide the grantor's estate with the liquidity to pay estate taxes, pay off debts, pay final expenses, and provide income to the grantor's surviving spouse and descendants. The grantor can use their annual gift tax exclusion to make cash gifts to the trust, and pay the premium on the life insurance policy. Gifts of premiums to the trust counts as a completed gift (falling under the annual exclusion) so any insurance proceeds on the deceased's life are not included in their taxable estate. For a full listing of key content on creating an estate plan for an individual with a spouse or partner residing in Illinois, see Estate Plan for Individual with Spouse or Partner Resource Kit (IL). For more information on irrevocable trusts, see Characteristics and Uses of Trusts (IL), Requirements and Restrictions on Trust Purposes and Administration (IL), and Revocation, Amendment, and Termination of Trusts (IL).