← Back to Learning Center

Irrevocable Life Insurance Trust (ILIT)

What is it?

An ILIT owns and is the beneficiary of life insurance policies, removing the death benefit from the insured's taxable estate. Without an ILIT, life insurance proceeds are included in your estate and potentially subject to estate tax. The trust receives the death benefit tax-free and distributes it according to the trust terms.

Why is it important?

Life insurance is often the largest single asset in an estate. A $2 million policy in your estate could cost your heirs $800,000+ in estate taxes (at 40%). An ILIT eliminates this entirely. The trust can also provide liquidity to pay estate taxes on other assets, fund buy-sell agreements, or provide tax-free income to beneficiaries. Every person with significant life insurance should consider an ILIT.

Example Language

The Grantor establishes this ILIT and transfers ownership of a $2,000,000 life insurance policy to the Trust. The Trustee shall maintain the policy using annual gifts from the Grantor (covered by annual exclusion via Crummey notices). Upon the insured's death, the $2,000,000 proceeds pass to the trust tax-free and are distributed to beneficiaries outside the taxable estate.