Irrevocable Life Insurance Trust (ILIT)
Excluding substantial life insurance proceeds from your gross taxable estate.
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Overview & Purpose
An irrevocable trust created specifically to own and hold life insurance policies on the grantor’s life, preventing death benefit proceeds from inflating the taxable estate for high-net-worth families.
Who May Consider It
- You have large life insurance policies that would push your total net worth over state or federal estate tax limits.
- You need immediate liquidity to pay estate taxes or business buy-sell agreements without selling real estate.
- Keeps 100% of life insurance policy proceeds out of the insured’s gross taxable estate.
- Provides immediate liquid cash to trustees to purchase illiquid estate assets or lend cash to pay taxes.
- Must survive 3 years if an existing policy is transferred into the trust (IRC § 2035 Three-Year Rule).
Important Trade-offs
- Requires annual Crummey notices to beneficiaries when paying policy premiums.
Relevant Assets
State insurable interest laws must be strictly satisfied.
Questions to Discuss with an Attorney
- Can we purchase a new policy directly inside the ILIT to bypass the 3-year lookback rule?
Related Documents
Sources & References
This article was prepared using publicly available legal and government sources. Laws change, and readers should verify current rules in their jurisdiction.
Reviewed for educational accuracy
Last reviewed: September 30, 2026 · Next scheduled review: March 2027
This article is educational information and is not legal advice. Laws vary by jurisdiction. No attorney has reviewed this material unless a named, licensed attorney is credited above.
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