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Advanced Estate Planning: Estate Tax Planning with Life Insurance

Life insurance proceeds are subject to estate tax. An Irrevocable Life Insurance Trust (or ILIT) is a powerful planning tool available to avoid estate tax on life insurance proceeds. The ILIT planning structure works as follows:

  1. You establish an ILIT and have the ILIT purchase life insurance on your life (or you transfer an existing policy to the ILIT.

  2. You gift the ILIT cash necessary to pay premiums on the policy.

  3. Upon your death, the policy’s death benefit is paid to the ILIT and is not subject to estate tax.

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Advanced Estate Planning