Revocable or Irrevocable Life Insurance Trust - Time to Choose

Enjoying Retirement

A revocable life insurance trust is a great tool that is designed to own and/or be the beneficiary of life insurance on a grantor’s life. However, this type of trust, serves no estate tax planning purposes. Since the trust is revocable, the insured is treated as the owner of the policy, and the death proceeds will be included in the insured’s gross estate. The revocable life insurance trust is ordinarily used when a specific, perhaps temporary, protection need exists.

For example, the revocable life insurance trust is an excellent method of providing life insurance benefits to protect young children. If the insured dies, the trust becomes irrevocable and the children can be provided for by the beneficial terms of the trust. The revocable life insurance trust is also an excellent method of providing protection for children following a divorce. With the divorce rate in this country at close to 50%, it’s no wonder that the popularity of these products have increased, as well as job opportunities for attorneys that write these up!

An irrevocable life insurance trust (ILIT) is generally used by older clients who have a more stable family/financial situation. An ILIT can be designed to provide life insurance benefits for a client’s heirs that will be excluded from the client’s gross estate! This is obviously a huge benefit of this particular product, and is one of the essential tools used for many estate attorneys and planners. In addition, contributions to the trust can be designed to avoid gift and generation-skipping taxes.

Thus, an irrevocable life insurance trust is a perfect tool for the estate liquidity needs of older and wealthy clients without adding to their tax burden. The downside is that since the trust is irrevocable, the client needs to be absolutely certain of his or her beneficial intent and estate planning objectives when the trust is drafted. Failure to do so could have devastating results.


About the author: Kyle McDonald holds FIC, FICF, FSCP® & CLTC designations. His viewpoint on life insurance is simple, “Anyone with a family must have life insurance. In the end, life insurance is for others you care about, not you.” He is ready to help you and your family get the best option available. Contact Kyle today at   1-800-651-1953 or