An irrevocable life insurance trust (ILIT) is a trust that owns a life insurance policy on your life so the death benefit can pass to your heirs outside your taxable estate. It's an estate-planning structure created by your attorney; the insurance is what it holds. The power comes from a real trade-off — to gain the estate-tax benefit, you permanently give up control of the policy.
Insurance inside the estate
The problem it solves
Life insurance is a great source of estate liquidity, but if you personally own the policy, the death benefit is generally counted in your taxable estate — which can add to the very estate tax the insurance was meant to pay. An ILIT breaks that loop: because the trust, not you, owns the policy, the proceeds can pass to beneficiaries outside your estate while still being available to cover taxes and settlement costs.
The mechanics
How it's structured and run
- Your attorney drafts the trust and you name a trustee and beneficiaries.
- The trust applies for and owns a new policy (or an existing one is transferred, subject to a look-back rule).
- You make gifts to the trust; the trustee pays premiums from those gifts.
- Beneficiaries typically receive Crummey withdrawal notices so gifts qualify for the annual exclusion.
- At death, the trust receives the proceeds and distributes or uses them per its terms — outside your taxable estate.
Weigh it honestly
The control trade-off
Irrevocability is not a formality. You generally can't undo the trust, reclaim the policy, or tap its cash value for yourself. If your family situation or intentions might change materially, that permanence is a serious consideration. An ILIT rewards clarity and punishes second thoughts — which is exactly why it belongs to a deliberate estate plan built with your attorney, not an impulse purchase.
When this is the wrong tool — and what can go wrong
An ILIT is the wrong move when:
- Your estate has no real estate-tax or liquidity problem for it to solve — the complexity may not be worth it.
- You're not comfortable permanently giving up control of the policy and its cash value.
- There's no one willing and able to serve as a diligent trustee and handle the annual gifting and notices.
- Your intentions about beneficiaries are still in flux; irrevocable structures don't flex easily.
- It's set up around the insurance sale rather than led by the estate attorney whose document it is.
Common questions