An Irrevocable Life Insurance Trust (ILIT) is one of the most effective estate planning tools available. By placing a life insurance policy inside an irrevocable trust, the death benefit is removed from your taxable estate — potentially saving your heirs hundreds of thousands of dollars in estate taxes.
How an ILIT Works
You create an irrevocable trust and name it as both the owner and beneficiary of a life insurance policy. Because you no longer own the policy — the trust does — the death benefit is not included in your taxable estate when you die. The trustee receives the proceeds and distributes them to beneficiaries according to the trust’s terms.
Key Benefits
Estate Tax Savings
Death benefit proceeds pass outside your taxable estate — the trust owns the policy, not you.
Liquidity for Estate Taxes
Proceeds can be used to pay estate taxes without forcing heirs to sell real estate or business assets.
Creditor Protection
Assets held in an irrevocable trust are generally protected from creditors of both the grantor and beneficiaries.
Controlled Distribution
You set the terms for how and when beneficiaries receive proceeds — ideal for protecting younger heirs.
Funding the ILIT — Crummey Letters
To keep the annual premiums gift-tax free, the trust is funded via annual gifts. Each beneficiary must receive a “Crummey letter” notifying them of their right to withdraw the gift within a set window (typically 30 days). If they don’t withdraw it, the trustee uses the funds to pay the premium. This qualifies the gift for the annual gift tax exclusion (currently $18,000 per person per year).
Talk to Us About an ILIT Strategy
Call us at 1-888-972-0024. We work with estate planning attorneys and can help you find the right life insurance policy for your ILIT.