The ILIT Explained
How an Irrevocable Life Insurance Trust removes your policy from your taxable estate — and why it matters.
If you own your life insurance policy, the IRS includes the entire death benefit in your taxable estate. On a $3 million policy, that can mean $1.2 million in estate taxes — money your family loses before they see a dollar.
The current exemption in 2026 is $15,000,000 per person.
The Three Parties of an ILIT
How It Works — Step by Step
An estate planning attorney creates the ILIT document naming the trustee and beneficiaries. Signed and notarized.
The trustee — not you — applies for and owns the life insurance policy from day one. For existing policies: beware the 3-year IRS lookback rule.
You gift money to the trust each year (up to $18,000/recipient tax-free). Beneficiaries receive a 30-day withdrawal notice — this qualifies the gift for the annual exclusion.
The insurer pays the death benefit directly to the ILIT — outside your estate, outside probate. The trustee distributes per the trust terms.
Additional Benefits
Assets in the ILIT are shielded from your creditors and, with proper drafting, from beneficiaries’ creditors too.
Proceeds bypass the probate process entirely — passing quickly and privately to your heirs.
The trustee can loan money to the estate to pay taxes — no forced sale of real estate or business assets.
You determine how and when heirs receive money — protecting spendthrift or special needs beneficiaries.
With proper drafting, the ILIT can benefit multiple generations using the GST tax exemption.
Assets in a properly drafted ILIT are generally protected from a beneficiary’s divorce proceedings.
This infographic is for informational purposes only and does not constitute legal or tax advice. Consult a qualified estate planning attorney for your specific situation. © TrustFully.law