Why You May Want an ILIT (Even If You Already Have a Trust)
Many people assume that once they have a revocable living trust, their estate plan is complete. In reality, life insurance often sits outside that plan in a way that can create unexpected tax exposure, creditor risk, and loss of control.
An Irrevocable Life Insurance Trust, commonly called an ILIT, is designed specifically to hold and protect life insurance. Even if you already have a trust, an ILIT can play a critical role in making sure your life insurance actually benefits your family the way you intend.
What an ILIT Is and Why It Exists
An ILIT is a separate, irrevocable trust that owns a life insurance policy on your life. Because the trust owns the policy, the death benefit is not considered part of your estate if the ILIT is set up and administered correctly.
This distinction matters because life insurance proceeds can be substantial and are often overlooked when people estimate the size of their estate. An ILIT exists to solve that problem by removing the policy from your taxable estate while adding layers of protection and control that beneficiary designations alone cannot provide.
Estate Tax Protection for Larger or Growing Estates
One of the primary reasons families use an ILIT is estate tax planning. If the total value of your assets, including your life insurance death benefit, approaches or exceeds the federal estate tax exemption, that insurance payout can increase your estate’s tax liability.
By placing the policy inside an ILIT, the death benefit is kept outside your taxable estate. This can preserve a significant portion of your wealth for your heirs instead of losing it to estate taxes.
This planning is especially relevant now, as current federal law provides for a reduction in the estate tax exemption in 2026 unless Congress acts. Families who are comfortably below the exemption today may not be in the future. An ILIT allows for proactive planning rather than last-minute fixes.
Stronger Protection From Creditors and Divorce
Because the ILIT owns the life insurance policy, the proceeds receive a level of protection that individual ownership or simple beneficiary designations do not provide.
When structured properly, ILIT proceeds are generally:
Protected from your personal creditors
Shielded from the creditors of your beneficiaries
Less vulnerable to claims in divorce proceedings
Preserved for children and future generations
This protection is especially valuable for families with business owners, professionals in higher-risk fields, or beneficiaries who may face financial instability in the future. It creates a buffer that keeps life insurance proceeds focused on long-term family support rather than short-term legal or financial claims.
Control Over How Life Insurance Proceeds Are Used
Without an ILIT, life insurance is usually paid out in a lump sum directly to beneficiaries. While that may be appropriate in some cases, it can create problems in others.
An ILIT allows you to set clear instructions for how the insurance proceeds are managed and distributed. You can structure the trust to support minor children, provide income for a surviving spouse, delay distributions until beneficiaries reach certain ages, or protect a child who struggles with spending or financial decision-making.
Instead of a one-time payout, life insurance can be transformed into a long-term financial resource that supports your family over time. This level of control is one of the most underappreciated benefits of an ILIT.
ILITs and Probate Avoidance
Life insurance generally avoids probate when beneficiaries are named correctly. An ILIT preserves this benefit while adding tax efficiency and asset protection.
While life insurance typically avoids probate when beneficiaries are named correctly, probate can still affect other parts of an estate if proper planning is not in place. Understanding why many Florida families choose to avoid probate helps put the role of an ILIT into context as part of a broader estate planning strategy.
When the trust owns the policy, the trustee can access the proceeds immediately after death and use them according to the trust’s instructions. There is no need for court involvement, no public record, and no probate delay.
For families focused on keeping their affairs private and efficient, ILITs work well alongside broader probate avoidance strategies, such as those used in comprehensive trust-based estate planning.
How an ILIT Works With a Revocable Living Trust
An ILIT is not a replacement for a revocable living trust. Each serves a different purpose.
A revocable trust is designed to manage and distribute assets you own during life and at death. An ILIT is designed specifically to protect life insurance that you do not want included in your estate.
Used together, they create a more complete estate plan that offers smoother administration, stronger tax efficiency, better asset protection, and greater control over how wealth is passed on. Many families who work with a revocable living trust attorney in South Florida eventually add an ILIT once they understand how life insurance fits into the bigger picture.
Proper Setup and Ongoing Administration Matter
ILITs must be set up carefully to achieve their intended benefits. Ownership transfers, premium payments, and trustee responsibilities must be handled correctly to avoid unintended tax consequences.
Because ILITs are irrevocable, they require thoughtful planning upfront. This is why families often work with experienced estate planning counsel who understand both trust planning and Florida-specific considerations.
ILITs are frequently used as part of larger estate plans for families in Palm Beach County, Broward County, and Miami-Dade County who want long-term protection and flexibility built into their planning.
Final Thoughts: Think of an ILIT as a Protective Layer
Most clients find it helpful to think of an ILIT as a protective layer placed around their life insurance. It ensures that a valuable asset is not exposed to unnecessary taxes, creditors, or loss of control.
Even if you already have a trust, your life insurance deserves its own planning strategy. An ILIT can turn a simple insurance policy into a carefully managed legacy that supports your family in the way you intend, both immediately and for generations to come.
A trust alone may not fully protect your life insurance or your family’s future. Adding the right planning tools can make a meaningful difference in how your assets are preserved and passed on. If you want guidance tailored to your goals, schedule a consultation with Karten Legal to review your estate plan and explore whether an ILIT makes sense for you.
