The majority of life insurance policies sold into the secondary
market are owned by an irrevocable life insurance trust
("ILIT"). An ILIT is an irrevocable trust specifically
designed to hold and own life insurance policies. Once the ILIT has
been set up, ownership of the policy or policies is transferred to
the trustee of the ILIT. The utility of an ILIT is that it will
keep the proceeds of the life insurance out of the trust
grantor's estate upon his or her death.
In the typical life settlement transaction, the trust agreement
is reviewed to confirm the trustee possesses the authority to sell
the policy out of the trust to a third party. Typically, that is
the end of the inquiry, although some purchasers of policies demand
the trustee execute a resolution or certificate affirming the
trustee's authority to act under the terms of the trust.
