Irrevocable Life Insurance Trust
An Irrevocable Life Insurance Trust (ILIT) is a specialized estate planning tool designed to own and manage life insurance policies. It removes life insurance proceeds from your taxable estate, ensuring that beneficiaries receive the full death benefit without estate tax liabilities.
Key Features of an Irrevocable Life Insurance Trust
- Keeps life insurance proceeds tax-free – Removes the policy from your taxable estate.
- Provides controlled distributions – Allows structured payouts to beneficiaries.
- Protects against creditors – Shields life insurance proceeds from lawsuits and claims.
- Avoids probate – Ensures a smooth transfer of benefits without court delays.
- Maintains financial privacy – Keeps life insurance ownership details out of public records.
Our Irrevocable Life Insurance Trust Services
Looking to protect life insurance proceeds from taxation and legal risks?
- Custom ILIT structuring – We design trusts to maximize tax benefits and financial security.
- Life insurance policy integration – We help you transfer policies into the trust properly.
- Trust administration and compliance – Our team ensures legal compliance and smooth benefit distribution.
We specialize in estate planning strategies that safeguard insurance payouts for your heirs while minimizing tax burdens.
Who Should Consider an Irrevocable Life Insurance Trust?
An ILIT is ideal for individuals who want to ensure that life insurance benefits are protected, tax-efficient, and smoothly transferred to beneficiaries. It is particularly beneficial for:
- High-net-worth individuals – Helps avoid estate taxes on large life insurance payouts.
- Families planning for generational wealth transfer – Ensures structured inheritance and asset protection.
- Business owners – Can be used to fund buy-sell agreements and business succession plans.
- Parents with young beneficiaries – Prevents minors from receiving lump-sum payouts too early.
- Individuals seeking creditor protection – Ensures life insurance proceeds are protected from lawsuits and claims.
How to Set Up an Irrevocable Life Insurance Trust
Establishing an ILIT requires careful structuring to ensure tax advantages and proper administration. Here is our process:
- Initial consultation – We assess your life insurance policies and estate planning needs.
- Trust drafting – Our attorneys create a customized irrevocable life insurance trust agreement.
- Policy ownership transfer – The trust becomes the owner and beneficiary of your life insurance policies.
- Crummey letter compliance – We implement legal notices to qualify premium contributions for gift tax exemptions.
- Trust administration – We oversee premium payments, legal compliance, and beneficiary distributions.
Disadvantages of an Irrevocable Life Insurance Trust
While an ILIT offers major estate tax and asset protection benefits, it has some limitations:
- Irrevocable structure – Once set up, the trust cannot be easily changed or revoked.
- Loss of direct control – The policy is owned by the trust, limiting grantor access.
- Strict IRS rules – Requires proper management to maintain tax advantages.
- Annual gift tax reporting – If contributions exceed the annual exemption, gift tax filings may be required.
- Trustee responsibilities – The trustee must manage premium payments and ensure compliance with legal requirements.
Irrevocable Life Insurance Trust FAQ
No, to remove the policy from your taxable estate, a third-party trustee must manage the trust.
It removes life insurance proceeds from your taxable estate, but other assets may still be subject to estate tax.
Yes, but each policy must be properly transferred to the trust to maintain tax benefits.
The trust must be funded to maintain premium payments, or the policy may lapse.
Yes, or you can structure distributions over time to protect their financial future.
Yes, once proceeds are inside the trust, they are generally shielded from creditor claims.
Best Alternatives to an Irrevocable Life Insurance Trust
If an ILIT is not the right fit, consider these alternatives:
- Revocable Living Trust – Offers estate planning benefits but does not remove life insurance from the taxable estate.
- Family Limited Partnership (FLP) – Provides structured wealth transfers with additional asset protection.
- Spousal Lifetime Access Trust (SLAT) – Allows tax-efficient wealth transfers while giving a spouse access to assets.
- Dynasty Trust – Preserves wealth across multiple generations while minimizing estate taxes.
- Direct beneficiary designations – Assigning a beneficiary directly can simplify payouts but may not provide tax advantages.
Each option serves different estate and financial planning goals. Our team can help determine the best strategy to protect your life insurance assets.
Secure Your Life Insurance Benefits with an ILIT
An Irrevocable Life Insurance Trust ensures that life insurance proceeds are protected, tax-efficient, and smoothly transferred to beneficiaries. At SJF Law Group, we help individuals and families structure ILITs that safeguard their wealth and maximize estate planning benefits.
Contact us today to set up an ILIT that secures your legacy.