Irrevocable Life Insurance Trusts (ILIT)1

Address Your Tax Needs and Obtain Peace of Mind

Life insurance in its various forms serves as a valuable component of your overall portfolio, enabling you to plan sensibly and effectively for the future.

  • Term life insurance is often acquired to retire a debt (e.g. a mortgage) or pay for a looming expense (e.g. college costs) in the event of the premature death of the primary income earner.
  • Permanent insurance with a high cash-value and a low death benefit sometimes supplements retirement income (investments are generally permitted to grow tax-deferred).
  • Permanent insurance funds buy-sell agreements within closely-held businesses.
  • Permanent insurance with a low cash-value and a high death benefit provides cash to an estate to pay looming estate tax.

When acquiring life insurance to cover estate taxes, the policy owner should be an Irrevocable Life Insurance Trust (ILIT) rather than the insured to avoid the repercussions of estate tax hits when the insured retains any incident of ownership at date of death. Within an ILIT properly structured by City National, life insurance proceeds will pass free of estate tax to trust beneficiaries.

  • Contributions to the trust used to pay the policy's premium may qualify as annual exclusion gifts.
  • If an existing policy is transferred to a life insurance trust and the grantor passes away within three years of the transfer, the proceeds will be included in the grantor’s taxable estate.
  • An ILIT may be used to provide a substantial inheritance, to provide needed liquidity to pay estate tax, to replace the value of property given to charity, or to fund buy-sell agreements for business owners.

City National insurance experts help you navigate the nuances, traps and opportunities inherent in your overall life insurance plan.

  1. City National Bank its affiliates and subsidiaries, as a matter of policy, does not give tax, accounting, regulatory or legal advice. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. You should consult with your other advisors on the tax, accounting and legal implications of actions you may take based on any strategies presented taking into account your own particular circumstances.