Get a Consultation

Call us Today

Can A Trustee Sell A House?

Understanding Irrevocable Life Insurance Trusts

An Irrevocable Life Insurance Trust (ILIT) is a powerful tool in estate planning, providing financial security while reducing estate taxes. This article will take you through a comprehensive understanding of ILITs, their benefits, drawbacks, and practical implications.

Concept of Life Insurance

Life insurance is a contract between an individual and an insurance company, where the company promises to pay a designated beneficiary a sum of money upon the death of the insured person. It serves as an essential tool in estate planning, ensuring the financial stability of loved ones after one’s death.

by | Jun 9, 2023

Types of Life Insurance Policies

There are two primary types of life insurance: term life and whole life. Term life insurance provides coverage for a specific period, whereas whole life provides coverage for the insured’s entire life, often building cash value over time.

Understanding Trusts

A trust is a legal arrangement where one person or institution (the trustee) holds and manages assets for the benefit of another person or group (the beneficiaries). The assets are placed into the trust by a person known as the grantor or settlor.

Differences Between Revocable and Irrevocable Trusts

Revocable trusts can be altered or cancelled by the grantor during their lifetime. Conversely, an irrevocable trust, once established, generally cannot be altered, amended, or revoked by the grantor.

Mechanics of an Irrevocable Life Insurance Trust

An ILIT is an irrevocable trust designed to hold and own a life insurance policy. The grantor transfers ownership of the life insurance policy to the trust, and the trust becomes the policy owner and beneficiary.

Setting Up an ILIT

Setting up an ILIT involves the creation of the trust document, naming the trustee and beneficiaries, and transferring the life insurance policy to the trust. It requires careful planning and is typically guided by an experienced attorney.

Financial Advantages of an ILIT

ILITs offer several significant financial advantages. The main benefit is the ability to remove the death benefit of a life insurance policy from the grantor’s taxable estate, potentially saving substantial amounts in estate taxes. ILITs also offer protection from creditors and a means of providing liquidity to pay estate taxes and other settlement costs.

Limitations and Drawbacks of an ILIT

Despite their advantages, ILITs have some limitations. The primary drawback is their irrevocable nature, which means once the trust is set up and the life insurance policy transferred, the grantor typically can’t make changes. Additionally, ILITs can be complex to establish and manage, may have gift tax implications, and require careful adherence to IRS rules to avoid inclusion of the death benefit in the grantor’s estate.

Comparisons of ILIT to Other Estate Planning Tools

ILITs, like other estate planning tools, have their place depending on individual circumstances. They should be considered alongside other strategies like revocable living trusts, gifting, and various estate tax reduction strategies.

Case Studies and Practical Applications of ILIT

Consider a case where a high net worth individual sets up an ILIT to hold a substantial life insurance policy. Upon their death, the death benefit paid to the trust is not included in their estate for estate tax purposes, resulting in significant estate tax savings.

Legal and Regulatory Considerations for ILIT

ILITs require a solid understanding of tax laws and regulations. It is crucial to work with an experienced attorney and tax professional when setting up and managing an ILIT to ensure compliance with all legal requirements and to navigate potential changes in tax law.


While ILITs can be powerful estate planning tools, they aren’t for everyone. Their benefits must be weighed against their limitations, complexity, and potential tax implications. As with all estate planning strategies, it is critical to consult with professional advisors to determine the best approach for your personal circumstances.

Probate Attorney, Cost And Hiring A Law Firm

Probate Attorney, Cost and Hiring a Law Firm

Probate Attorney A probate attorney, also known as a probate lawyer,  plays a crucial role in court as a personal representative in estate planning and legal proceedings. They can also act as a trustee. Probate lawyers specialize in the legal process in probate court...

Executor’S Authority Over Beneficiary: Legal Considerations And Limitations

The Basics of Will Disputes: Contesting a Will’s Validity

Contesting the Will When a loved one passes away, their will is their final word, a roadmap that dictates the division of their assets. But what happens if you believe the will does not accurately reflect the deceased's true intentions? This is where contesting the...

Understanding Irrevocable Life Insurance Trusts

“I have been working with this firm since 1994; you can’t beat a firm like this, that is so ethical and competent.”

Dixie Fisher

Client Since 1994