Which statement best describes a trust that is typically not amendable after creation and is often used to own a life insurance policy?

Which statement best describes a trust that is typically not amendable after creation and is often used to own a life insurance policy?

• A. Revocable living trust
• B. Irrevocable life insurance trust
• C. Testamentary trust
• D. Charitable remainder trust

Answer: (B)

The idea being tested is the permanence of an irrevocable trust and its use to own life insurance. An irrevocable life insurance trust is designed so that, once created, the grantor cannot amend or revoke it. This irreversibility matters because the trust becomes the owner of the life insurance policy, not the individual. When the policy is owned by the ILIT, the death benefit generally does not become part of the grantor’s taxable estate, which helps with estate tax planning and provides liquidity to the estate or to beneficiaries without tax complications. The premiums are paid into the trust (often as gifts to the trust for the benefit of the insured), and the trustee controls the policy according to the trust terms, not the grantor’s personal wishes. This setup distinguishes it from a revocable living trust, which can be amended; a testamentary trust, created by a will at death; or a charitable remainder trust, which serves a different tax and philanthropic purpose.

The idea being tested is the permanence of an irrevocable trust and its use to own life insurance. An irrevocable life insurance trust is designed so that, once created, the grantor cannot amend or revoke it. This irreversibility matters because the trust becomes the owner of the life insurance policy, not the individual. When the policy is owned by the ILIT, the death benefit generally does not become part of the grantor’s taxable estate, which helps with estate tax planning and provides liquidity to the estate or to beneficiaries without tax complications. The premiums are paid into the trust (often as gifts to the trust for the benefit of the insured), and the trustee controls the policy according to the trust terms, not the grantor’s personal wishes. This setup distinguishes it from a revocable living trust, which can be amended; a testamentary trust, created by a will at death; or a charitable remainder trust, which serves a different tax and philanthropic purpose.