Irrevocable life insurance trusts for estate liquidity
A large life insurance policy owned in your own name can be pulled into your taxable estate and taxed at up to 40%. An ILIT owns the policy instead, so the proceeds can reach your heirs free of federal estate tax.
Confidential review · Coordinated with your attorney and tax advisor
What an ILIT actually does
An Irrevocable Life Insurance Trust owns your policy instead of you. Because you don't own it, the death benefit isn't counted in your taxable estate, yet it still delivers cash when your family needs it.
Estate-tax exclusion
Removes life insurance from your taxable estate, so the death benefit isn't taxed at up to 40%.
Liquidity
Tax-free cash to pay estate taxes and expenses on other assets, without a forced sale of a business or real estate.
Creditor protection
Protects the proceeds from creditors and, in many states, from the creditors of your beneficiaries.
Control
The trust can protect a spendthrift heir or equalize inheritances across children.
How the estate-tax saving works
Federal estate tax applies to the portion of an estate above the exemption, which for 2026 is $15 million for an individual and $30 million for a married couple, at a top rate of 40%.
If you own a policy personally, its death benefit is counted in your estate. Held in an ILIT, it is not, so the taxable estate is smaller by the amount of the death benefit. The saving is the 40% tax that would otherwise apply to the part of the death benefit that pushes the estate above the exemption.
State estate and inheritance taxes, prior gifts, deductions and policy structure all change the result. We model your actual situation with your attorney and tax advisor.
How an ILIT works, step by step
Create the trust
Your estate-planning attorney drafts the ILIT. You, the grantor, name a trustee (often an adult child, trusted advisor or corporate trustee) and the beneficiaries and distribution terms. The trust gets its own tax ID and bank account. You give up direct control of the policy, and that separation of ownership is what keeps the death benefit out of your estate.
Fund the premiums
The ILIT applies for and owns a policy on your life. Each year you gift cash to the trust and the trustee pays the premiums. Annual gifts can stay within the $19,000 (2026) per-beneficiary exclusion. A new policy owned by the ILIT from day one avoids the three-year survival period that applies to transferring an existing policy.
Send Crummey letters
For premium gifts to qualify for the annual exclusion, beneficiaries need a present interest. After each gift the trustee sends a Crummey letter giving each beneficiary a limited window, usually about 30 days, to withdraw their share. They typically decline. Skip this and the gifts become future-interest gifts, losing the exclusion and potentially triggering gift tax.
Tax-free transfer
At your passing, the insurer pays the death benefit to the ILIT. The proceeds are not part of your taxable estate and pass to beneficiaries free of federal estate and income tax. The trust can lend to or buy assets from your estate to provide liquidity.
Who should consider an ILIT?
An ILIT is especially valuable when a sizable estate meets a sizable life insurance policy.
High-net-worth families
Estates likely to exceed the federal exemption ($15 million individual / $30 million married in 2026).
Business owners
Liquidity for estate taxes without selling the company, and often to fund a buy-sell agreement or key-person coverage.
Real estate investors
Significant, illiquid holdings that are hard to sell quickly to pay an estate-tax bill within the nine-month deadline.
Parents with multiple children
Equalize inheritances when one child takes over the family business and the others receive the insurance proceeds.
Professionals with large policies
Physicians, executives and others whose coverage would otherwise inflate their taxable estate.
Anyone seeking asset protection
Those in high-liability professions who want life insurance shielded from potential creditor claims.
Important considerations
Irrevocability
Once established, the trust generally can't be changed or revoked. You give up control of the policy and its cash value.
Three-year rule
Transferring an existing policy into an ILIT requires you to survive three years for it to be excluded from your estate.
Ongoing administration
The trustee must run the trust properly, sending Crummey letters and keeping records each year.
Professional guidance
ILITs must be drafted by an estate-planning attorney and coordinated with your tax advisor. We work alongside them.
Work with an experienced ILIT advisor
Michael Oskouian, co-founder of First Underwriters, has more than three decades in financial services and works with high-net-worth families and their legal teams on ILITs and advanced estate-planning strategies.
“An ILIT is one of the most effective tools for protecting your family's inheritance from estate taxes. I work closely with each client and their legal team to make sure the trust is properly structured and the insurance strategy fits their overall estate plan.”
Protect your family's inheritance
Tell us a little about your situation and Michael will personally review whether an ILIT fits your estate plan. Confidential, no obligation.
- We coordinate directly with your attorney and tax advisor
- We compare carriers for the right policy
- Confidential, no-pressure review of your options
Already working with an estate attorney?
We're glad to join the conversation and coordinate the insurance side of the plan.
Content on this page is a general summary for education and is not tax, legal or investment advice, a statement of coverage, an offer or a binder. Federal figures reflect 2026 amounts (a $15 million individual / $30 million married estate-tax exemption, a 40% top rate and a $19,000 annual gift exclusion); state estate and inheritance taxes, prior gifts, deductions and policy design will change results. Consult your estate-planning attorney and tax advisor before establishing an ILIT. Policy guarantees are subject to the claims-paying ability of the issuing insurer, and coverage is subject to underwriting.