How life insurance in a trust (ILIT) works
An irrevocable life insurance trust owns the policy on your life so the death benefit pays out free of estate tax and goes to your family on the terms you write. It is the standard tool for keeping a large life insurance benefit out of your taxable estate.
These are the questions that matter most when you’re thinking about life insurance in a trust.
Why hold life insurance in a trust?
A policy you own personally is part of your taxable estate. A policy owned by an ILIT is not.
| What happens to the death benefit | Policy you own | Policy owned by an ILIT |
|---|---|---|
| Death benefit sits outside your taxable estate. | ||
| Paid into the trust on the terms you wrote. | ||
| Designed to help shield from the beneficiary’s divorce and creditors. | ||
| Trustee manages distributions over time. | ||
| Death benefit included in your taxable estate. | ||
| Paid outright to the named beneficiary. | ||
| Exposed to the beneficiary’s divorces and creditors. | ||
| No structure around how the proceeds are used. |
How does an ILIT actually work?
You create the irrevocable trust, the trust applies for and owns the policy, and you make annual gifts to the trust that the trustee uses to pay premiums.
When you die, the death benefit pays into the trust. The trustee then distributes the proceeds to your family according to the terms you wrote — outright, in continuing trust for protection, or some combination of both.
What are Crummey notices and why do they matter?
Crummey notices give trust beneficiaries a temporary right to withdraw your annual gift to the trust. That right is what makes the gift qualify for the annual gift-tax exclusion.
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Step 1
You gift money to the ILIT, usually annually, sized to pay the premium.
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Step 2
Trustee sends Crummey notices giving beneficiaries a temporary right to withdraw.
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Step 3
Withdrawal right lapses — beneficiaries let the window close.
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Step 4
Trustee pays the premium and the policy stays in force, outside your estate.
When does an ILIT make sense?
Five short choices. Brent reads your answer back to you at the end.
A 30-second guided quiz. Get a personal read on whether an ILIT fits.
How Brent helps you
- Looks at whether an ILIT actually makes sense for your estate before recommending one
- Drafts the ILIT and coordinates ownership transfer with your insurance professional
- Sets up the annual gifting and Crummey notice rhythm so the structure stays clean
- Writes distribution rules that match how you want the death benefit to support your family
