Is An Irrevocable Life Insurance Trust Right For You? Are You Super Rich?

Authored by Javier Simon via The Epoch Times (emphasis ours),

An irrevocable life insurance trust (ILIT) can allow affluent individuals to pass on wealth to heirs while keeping it outside of their taxable estate. This could help them reduce or avoid the estate tax upon death, which can be as high as 40 percent.

It also can help you pass over assets to individuals with special needs without affecting their eligibility for government programs like Medicaid or Social Security Disability Income (SSDI).

But it may not be the best for everyone. It’s virtually impossible to amend an ILIT without a court order or the consent of its beneficiaries. There are also some more pitfalls to watch out for.

So let’s take a closer look at an ILIT and see if it’s right for you as part of your comprehensive estate plan.

What Is an ILIT?

You can establish an ILIT with the help of a qualified estate-planning attorney. The ILIT is a legal arrangement that holds assets, mainly a life insurance policy, for the benefit of another or others.

As a trust grantor, you create the trust. You may appoint a trustee to manage the trust. The trustee can be anyone such as a lawyer, a family member, a friend or an organization. The trustee uses trust assets to purchase a life insurance policy in your name. The trustee is also responsible for paying annual insurance premiums and administering the trust.

When you pass away, the policy’s death benefit is paid directly to the trust and then proceeds are distributed to the beneficiary.

Tax Benefits of an ILIT

One of the main reasons people utilize ILITs is to minimize any estate tax burden. When you transfer assets to an ILIT, you relinquish control of those assets completely and they technically become property of the trust, which is its own legal entity.

So these assets won’t be part of your gross taxable estate and thereby could minimize estate taxes or eliminate them.

In 2026, the federal estate tax is levied on assets upon death worth more than $15 million ($30 million for married couples) before they can be transferred to heirs.

These amounts are known as the lifetime gift and estate tax exemption.

Here’s an example of how an ILIT may reduce your estate tax liability:

Let’s say you have assets totaling $15 million and purchase a life insurance policy that pays a $5 million death benefit to your child. After you pass away, you would have a taxable estate of $20 million. That’s above the lifetime gift and estate tax exemption.

But if the $5 million insurance policy were owned by an ILIT, your taxable estate would remain at $15 million. That’s under the exemption amount.

However, keep this in mind: Life insurance gifted to an ILIT within three years of your death would be included in your gross estate for estate tax purposes.

But ILITs have more to offer.

ILIT Asset Protection

If set up right, an ILIT can protect the insurance policy cash value or death benefit from creditors of both you and your beneficiaries. The reason is that ILITs are not considered to be owned by the beneficiaries. And there’s another upside to this.

If your beneficiary has special needs, their eligibility for government programs like Medicaid and SSDI may be affected by the size of their assets. Since the ILIT is not technically owned by the beneficiary, this could avoid income-based drawbacks for qualification in government programs.

But there are some drawbacks to ILITs.

Irrevocable Means Irrevocable

Once you transfer assets to an ILIT, you relinquish control over those assets. You generally can’t take them back or make any changes to the ILIT once it has been established without the consent of all beneficiaries or some kind of court order.If you don’t have a large estate and therefore expect to owe no estate taxes, you may be better off with a revocable living trust. With these trusts, you still remain in control of its assets during your lifetime and you can make amendments to the trust as you please.

The Bottom Line

An ILIT can be an essential tool, especially for affluent individuals with large estates who believe they’d face federal estate taxes. Because the states that levy their own estate tax have their own exemption levels, an ILIT could also minimize state-based estate taxes.

ILITs also offer a certain degree of asset protection from creditors. So it may be a good idea when you or your beneficiaries are in litigious careers, too. And it also can be crucial for those with special needs, because ILITs can help them remain eligible for much needed government programs. But you have to be ready to relinquish control of assets in an ILIT completely.

Moreover, ILITs can be extremely complex and can backfire if not properly established and funded. This is why it’s a good idea to work closely with a qualified tax professional and estate planning attorney when pursuing an ILIT.

The Epoch Times copyright © 2026. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.