Types of Trusts

Is an ILIT right for me?

Schedule an appointment with The Taormina Firm to learn more about how an ILIT could help protect you and your family from an Estate Tax burden.


For those with life insurance policies which might push them into Federal Estate Tax territory, an Irrevocable Life Insurance Trust may be a good solution to minimizing that tax burden.


The Federal Estate Tax exemption is currently pegged at $11.58 million, meaning anyone with an estate larger than that amount will be subject to the Federal Estate Tax. And unless Congress acts, by 2026 the Federal Estate Tax exemption will decrease to $5 million. To avoid the Federal Estate Tax, especially if you are over or near the exemption level, it might be a good idea to establish an Irrevocable Life Insurance Trust ("ILIT").

While the proceeds of a life insurance policy are generally not included in a decedent's probate estate, the proceeds are included as part of their gross estate for tax purposes if: (1) the proceeds are payable to the decedent's estate; (2) the decedent owned the life insurance policy on his/her life; or(3) the proceeds can be used to pay back any creditors of the decedent. This means that even if all of the decedent's assets, excluding the life insurance policy, would not be subject to the Federal Estate Tax, when that life insurance policy is paid out and goes over the Estate Tax exemption, then the decedent's entire estate could be subject to taxation. If you have a life insurance policy that could bump you into Estate Tax territory, you should ask The Taormina Firm about establish an Irrevocable Life Insurance Trust.

An ILIT is a trust created to own an insurance policy on the life of the Settlor. The trust may also be named as a beneficiary of the life insurance policy. The main goal of an ILIT is to remove the value of the life insurance proceeds from the Settlor's estate for Estate Tax purposes. When a life insurance policy is owned by a properly funded and administered ILIT, the life insurance proceeds are not included in the Settlor's gross estate for Federal Estate Tax Purposes since the Settlor no longer owns the policy (technically, the ILIT owns the policy).

Once the Settlor dies, the life insurance proceeds are typically transferred to the ILIT and held in further trust to be distributed to the Settlor's beneficiaries, free of transfer tax. The proceeds may also be used to purchase assets from the estate to enable the estate to pay estate taxes without having to liquidate certain assets.

Unlike in a Revocable Living Trust scenario, the Settlor of an ILIT cannot be the Trustee. The Settlor must relinquish all power and control over the life insurance policy in order for the policy to be excluded from the Settlor's gross estate, so it is important to determine who would best be suited to administer the trust. The Trustee will be responsible for paying insurance premiums, choosing appropriate life insurance policies, managing the ILIT assets, properly investing the assets once the policy is paid out, and properly distributing the assets to the ILIT beneficiaries under the terms of the trust.

ILIT's do, however, come with significant disadvantages. For starters, an ILIT must be irrevocable, meaning that the Settlor cannot change the beneficiaries to the trust, or make modifications to the Trust except for under certain circumstances. Moreover, the Settlor will no longer have any control over his/her property, including the rights to change beneficiaries of the policy, access the cash value of the policy, cancel the policy, or pledge the policy for a loan.

To learn more about ILIT's, or to determine whether an ILIT might be a good fit for you and your family, please contact Vince Taormina, an estate planning attorney with The Taormina Firm, to discuss your options.