How does an irrevocable insurance trust work?

An insurance trust, like any trust has three parties. The grantor or trustmaker is the person creating the trust. The trustee is the person selected to manage the trust. The trust beneficiaries are the person(s) you name who will receive the trust assets after you die.

The trustee of the insurance trust or ILIT (irrevocable life insurance trust), purchases an insurance policy, with you as the insured and the trust as owner and beneficiary. When the insurance benefit is paid after your death, the trustee collects the funds and makes them available to pay estate taxes and other expenses and then distributes them to the trust beneficiaries as you have instructed. This can provide liquidity to an otherwise illiquid estate.

– Lee C. Mulligan