Why Use an ILIT?

An ILIT can help you:

✅ Minimize Estate Taxes
Keep the death benefit out of your taxable estate, potentially saving your heirs millions in taxes.

✅ Create Liquidity
Provide cash to pay estate taxes, debts, or expenses—especially valuable if your estate includes illiquid assets like real estate or a family business.

✅ Control the Use of Proceeds
Set specific rules for how and when your beneficiaries receive funds—ideal if you have minor children, special needs beneficiaries, or blended families.

✅ Protect the Policy
Shield the life insurance proceeds from creditors or divorce settlements (depending on state law and trust terms).

Irrevocable Life Insurance Trusts

Life insurance is a common and powerful tool in estate planning—but if not structured properly, the death benefit could be subject to estate tax, diminishing the financial support it was meant to provide.

An Irrevocable Life Insurance Trust (ILIT) is a smart solution. By owning your life insurance policy through a properly drafted ILIT, you can keep the death benefit out of your taxable estate, ensure it passes efficiently to your beneficiaries, and provide long-term financial protection for your loved ones.

How an ILIT Works

An ILIT is an irrevocable trust created specifically to own and manage life insurance policies. Once established, the trust—not you—owns the policy and is the named beneficiary.

When you pass away:

  • The insurance proceeds are paid directly to the trust, not to your estate

  • The funds are not subject to estate taxes, provided you’ve followed the proper structure

  • The trustee then distributes (or holds) the funds for the benefit of your chosen beneficiaries, according to the terms of the trust

Common Uses for ILITs

  • High-net-worth individuals looking to reduce estate tax exposure

  • Business owners needing liquidity to fund a buy-sell agreement

  • Parents of young children who want structured distributions over time

  • Clients with special needs beneficiaries who want to preserve government benefits

Important Considerations

  • Irrevocability: Once the trust is created and funded, you can’t change it or reclaim the policy.

  • Crummey Notices: If you gift premiums to the trust annually, beneficiaries must receive notice of their right to withdraw the gift to qualify it for the annual gift tax exclusion.

  • Timing: If you transfer an existing policy into an ILIT, you must survive three years for the death benefit to be excluded from your estate. (Purchasing a new policy within the ILIT avoids this issue.)

ILITs and Connecticut Estate Planning

Connecticut imposes a state-level estate tax, with an exemption far lower than the federal exemption. For many Fairfield County families, an ILIT can provide a cost-effective and tax-efficient strategy to pass life insurance proceeds to the next generation without reducing your Connecticut or federal exemption amounts.

Let’s Structure Your Plan for Maximum Impact

An ILIT is a highly effective estate planning tool—but only if it’s designed with your overall goals in mind. At the Law Office of Elizabeth Roache, I help individuals and families across Wilton, New Canaan, Westport, and throughout Fairfield County create estate plans that are as strategic as they are personal.