Used primarily for estate creation, estate preservation, and estate conservation. Basically, a
irrevocable trust is drafted (meaning drafted, designed, and created by a licensed JD professional aka a lawyer and/or attorney) to hold a LARGE
life insurance policy on the insured (usually a parent(s), or the spouses parent(s), and upon materialization of the death certificate, the
ILIT receives the death benefit insurance proceeds
tax free!!! Yes, that's right, tax free! Most the time insurance proceeds are tax free, but there's the exemption limit, so even if the death benefit is WELL OVER the current exemption limit, the entire thing is passed tax free to the trust. The trust itself then has beneficiaries who receive the proceeds in accordance with the trusts design and instructions.
Irrevocable Life Insurance Trust ,
ILIT --- Basically, a child (grown up in this example) decides he'd/she'd like to after college, get a good job, and use his/her income (or some of it) to purchase a LARGE life insurance policy on his/her parents, and place it in a Irrevocable Life Insurance Trust, ILIT. Then upon materialization of the death certificate, the child is then passed
tax free TONS of dinero! Then the child can take it easy, retire, and live off of e.g investments of any kind, perhaps treasury inflation protected securities.