Which trust owns a life insurance policy and is irrevocable?

• A. Revocable life trust
• B. Revocable life insurance trust
• C. Irrevocable life insurance trust
• D. Inter vivos trust

Answer: (C)

The policy must be owned by an irrevocable life insurance trust to be outside the grantor’s estate. In an ILIT, the trust is a separate entity and the policy is owned by the trust, with the grantor funding premiums by making gifts to the trust. Because the trust is irrevocable, the grantor cannot alter ownership or access the policy cash value, so the death benefit generally isn’t included in the grantor’s estate for estate-tax purposes. A revocable trust or a typical inter vivos living trust can be changed or revoked, so assets owned by those trusts may still be treated as part of the grantor’s estate. Hence, the arrangement that fits both ownership of the policy and irrevocability is the irrevocable life insurance trust.