How an ILIT works
You create an irrevocable trust, name an independent trustee, and the trust applies for and owns a new life insurance policy on your life.
At death, the carrier pays the death benefit to the trust.
ILITLegacy Counsel
ILIT Attorney — Irrevocable Life Insurance Trusts
Quick answer: An Irrevocable Life Insurance Trust (ILIT) owns your life insurance policy so the death benefit is paid to the trust — not to your estate — and is not subject to federal or state estate tax.
Key Points
- ◆Who it is for: anyone with life insurance above ~$1M, especially New York residents and high earners with significant policies
- ◆What it solves: estate tax inclusion of the death benefit, lack of probate privacy, and uncoordinated payouts to young beneficiaries
- ◆Requires the trust — not you — to own the policy and pay premiums (often via Crummey gifts)
- ◆Three-year lookback applies if you transfer an existing policy
Common mistakes we fix
Owning the policy personally and assuming the death benefit is tax-free — it is income-tax-free, but it is included in your taxable estate.
Transferring an existing policy into the ILIT and dying within three years (IRC §2035 pulls it back into the estate).
Skipping Crummey notices, which can disqualify the annual exclusion treatment of premium gifts.
New York, New Jersey & Ohio considerations
New York: with a state estate tax cliff at the $7,350,000 basic exclusion (2026), a large policy owned personally can by itself push a family into the cliff zone.
New Jersey: no estate tax, but the inheritance tax can still apply when proceeds pass to Class C/D beneficiaries unless properly structured.
Ohio: no estate tax, but ILITs remain valuable for asset protection, generational planning, and second-marriage situations.
How Legacy Counsel helps
We coordinate ILIT design with your insurance broker so the policy is issued directly to the trust, draft Crummey notice procedures, and provide annual administration guidance.
Frequently Asked
Can I be the trustee of my own ILIT?+
It is generally not advisable. Serving as trustee of a trust that owns insurance on your own life puts you in a position to hold policy-control powers — the ability to change beneficiaries, surrender or borrow against the policy, or assign it — and retained powers of that kind can be treated as incidents of ownership under IRC §2042 and pull the death benefit into your taxable estate. Trustee status alone is not automatically fatal in every case; the analysis turns on the powers actually held and how the document is drafted. Because the risk is avoidable, we normally use an independent trustee — someone other than the insured, or a professional trustee — and draft trustee powers to keep policy control away from the insured.
What if I already own the policy?+
We can transfer it to the ILIT, but IRC §2035 imposes a three-year lookback.
Are Crummey notices really required?+
In practice, yes. The annual exclusion applies only to present-interest gifts, so each beneficiary must have a real, time-limited right to withdraw the contribution and be told about it. Keeping those notices every year is what makes the exclusion defensible if the gifts are ever examined.
Does an ILIT make sense if my estate is under the federal exemption?+
Often yes in New York because of the state cliff, and frequently for asset protection and beneficiary management even when federal estate tax is not the driver.
Next step
Talk to Legacy Counsel
Fixed-fee estate planning for clients in New York, New Jersey, and Ohio.
Drew Jacobs is licensed in New York, New Jersey, and Ohio. Nothing on this page constitutes legal advice or an offer to represent you in a jurisdiction in which we are not licensed.
Prospective Client Disclaimer. Submitting this form does not create an attorney-client relationship. Do not send confidential or time-sensitive information until we have signed an engagement letter. We will review your submission and follow up to discuss whether we can represent you. By submitting, you consent to be contacted about your inquiry.