Irrevocable Life Insurance Trust

An ILIT — short for irrevocable life insurance trust — is a legal arrangement in which a trust, rather than an individual, holds ownership of a life insurance policy. Because the trust owns the policy, the death benefit generally is not counted as part of the insured person's estate for estate-tax purposes. This matters to families whose total wealth, once a large life insurance payout is added, could push the estate into territory subject to significant taxation. Families commonly use ILITs as one component of the broader legal entity structure built around significant wealth.

The word "irrevocable" is important. Once the trust is created and the policy is transferred into it, the original owner typically cannot take the policy back or change the trust's terms freely. That permanence is precisely what allows the arrangement to work from an estate-planning standpoint — the insured has genuinely given up ownership. A common point of confusion is treating an ILIT as an investment vehicle; it is not. It is a structural tool designed primarily around the timing and taxation of a death benefit.

Consider a founder who sold her logistics company and now holds substantial liquid assets. Her estate planner might explain that a large life insurance policy owned in her own name would increase her taxable estate at death. An ILIT, by contrast, could hold that same policy and, at her death, deliver proceeds directly to the trust's beneficiaries — often children or a family trust — outside the estate. Because these structures involve complex legal and tax rules that vary by jurisdiction and change over time, families must work with qualified attorneys and CPAs before proceeding.