Irrevocable Life Insurance Trust Attorney

Planning for the future is essential, especially when it involves your loved ones and valuable assets. An estate planning lawyer can help. We provide valuable guidance and ensure that your assets and beneficiaries are well taken care of when you’re gone.


One powerful tool that can be used in estate planning is an Irrevocable Life Insurance Trust, or ILIT. This legal document and estate planning tool allows individuals more control over their insurance policies and the money paid from those policies. But understanding and setting up an ILIT can be complex. This is where an estate planning lawyer who understands federal tax law becomes indispensable.


Call William C. Roof today to set up a consultation about your estate and get peace of mind.

How an ILIT Works

An Irrevocable Life Insurance Trust, or ILIT, is a special type of trust designed to hold and manage a life insurance policy. Three main parties are involved: the grantor, the trustee, and the beneficiaries.


  • The Grantor: This is the person who creates the trust. They initiate the ILIT, transfer ownership of their life insurance policy to the trust, and make cash gifts to the trust to pay the policy’s premiums.

  • The Trustee: This individual, appointed by the grantor, manages the trust. They handle tasks such as paying the policy premiums and ensuring the trust’s terms are carried out correctly after the grantor’s passing.

  • The Beneficiaries: The beneficiaries of the trust, often family members, are the people who the grantor chooses to receive the benefits of the trust, usually the life insurance policy’s proceeds, after the grantor’s death.

ILITs can also intersect with your gift tax responsibilities to the IRS. The federal gift tax is a tax levied on anyone who gives away more than $17,000 (the annual gift tax exclusion as of 2023) to one person in a year. An ILIT can effectively give away more money without taxation.


The way it works is that the grantor can fund the trust (using under $17,000 per year per beneficiary). Then, over time and many premiums, the insurance policy appreciates. The appreciation is protected from that gift tax. This strategy allows the grantor to fund the ILIT without exhausting their lifetime exemption or incurring additional taxes.

Types Of ILITs

There are various types of ILITs, including the traditional insurance trust and the modern irrevocable life insurance trust. Traditional ILITs are simpler and mainly focus on excluding the life insurance proceeds from the grantor’s federal estate tax purposes.

Modern ILITs, on the other hand, are more flexible and can be designed to achieve multiple goals, such as creditor protection, divorce protection, and preserving eligibility for public benefits.

Choosing between the traditional and modern ILIT depends on your individual needs and goals and your net worth. Some might need a straightforward approach to avoid estate taxes, while others might require a more comprehensive plan to protect their assets and beneficiaries.

lawyer with happy client

Benefits of ILITs

ILITs, particularly Traditional Life Insurance Trusts, provide crucial benefits, notably saving on death taxes or estate taxes. Usually, life insurance proceeds are received tax-free by beneficiaries, the value of the insurance policy is counted in the deceased person’s taxable estate. This calculation could lead to substantial estate taxes, which the ILIT helps to avoid.


By transferring ownership of the life insurance policy to an ILIT, the policy isn’t considered part of the grantor’s estate, and therefore not subject to estate taxes. The ILIT owns the policy, relieving the grantor from “incidents of ownership,” meaning they don’t directly control the policy, a key factor in achieving estate tax savings.


Furthermore, the ILIT offers strategic benefits such as providing liquidity to the estate for various needs, such as settling debts, paying final expenses, and offering financial support to surviving spouses or children. Thus, ILITs serve as a multifunctional tool in estate planning, optimized for tax benefits and enhanced control over the distribution of assets.

Drawbacks of ILITs

However, ILITs are not without drawbacks. Since it is an irrevocable trust, the grantor cannot make changes once it is established, which means losing direct control over the policy.


The creation and maintenance of an ILIT can also be complex and might require ongoing administrative efforts and costs. A well-administered ILIT requires annual tax filings and proper notifications to beneficiaries regarding certain transactions.


An ILIT is a powerful component in the realm of estate planning, but it’s just one piece of the puzzle. Crafting a comprehensive estate plan involves employing a variety of legal tools and strategies to ensure your assets are protected, managed, and distributed according to your wishes upon your passing.


In addition to ILITs, wills are fundamental in estate planning. A will outlines how you wish to distribute your assets after your death and can designate guardians for minor children. Trusts, broader than just ILITs, come in various forms, such as revocable living trusts, which allow for the management and protection of assets during one’s lifetime and an easier transfer after death.


Another essential tool is the durable power of attorney, which allows you to appoint an individual to manage your finances and legal decisions should you become incapacitated. Health care directives, including living wills and health care powers of attorney, ensure that your medical treatment preferences are respected and appoint someone to make medical decisions on your behalf if you are unable.


Beneficiary designations on financial accounts like IRAs, 401(k)s, and life insurance policies are also crucial, allowing these assets to pass directly to the chosen beneficiaries without going through probate.


The utilization of these tools, customized to your personal circumstances and objectives, collectively form a robust estate plan that safeguards your assets, minimizes taxes, and orchestrates the careful management and distribution of your estate in alignment with your desires and values. An estate planning attorney can provide essential guidance in weaving together these various elements into a cohesive and effective estate planning strategy.


What is an Irrevocable Life Insurance Trust?

An Irrevocable Life Insurance Trust (ILIT) is a legal arrangement that holds ownership of a life insurance policy, separate from the estate of the person insured, providing estate tax benefits and allowing for controlled distribution of the policy’s proceeds.


How Do I Put Together an ILIT?

Creating an ILIT involves drafting a trust document, choosing a trustee, and transferring ownership of your life insurance policy to the trust. It’s a complex process that often requires legal advise to ensure proper execution and management.


What are Some Benefits and Limitations of Irrevocable Life Insurance Trusts?

ILITs offer benefits such as reducing estate taxes and allowing control over the distribution of life insurance proceeds. However, they are irrevocable (as opposed to a revocable trust which could be changed) and complex to set up and manage, limiting flexibility and requiring careful planning.


Do I Need an Attorney for an Irrevocable Life Insurance Trust?

Hiring an attorney is advisable when setting up an ILIT. An attorney can help ensure that the trust complies with legal requirements and functions according to your estate planning goals. Discussing your individual needs and goals with an estate planning lawyer is important to determine whether an ILIT is suitable for your situation. An attorney can guide you through the complexities, ensuring that your wishes are accomplished, and your beneficiaries are protected and cared for.


Contact William C. Roof today to get help planning your estate.



The contents of this article are not comprehensive, they provide only a general overview of the subject matter discussed. This article does not establish a client-attorney relationship with the reader, and no legal decisions should be made based on the article’s contents. Because every legal matter arises under unique facts specific to the client, no legal decision should be made without consulting a licensed attorney.

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