What is an irrevocable life insurance trust (ILIT) and who needs one?

An ILIT is a trust that owns your life insurance policy so the death benefit stays out of your taxable estate. Normally, life insurance proceeds are income-tax-free to your heirs but still count toward your estate for estate tax purposes – a problem only if your estate exceeds the exemption (about $13.99 million in 2025). By having the trust own the policy and receive the payout, a large death benefit can pass to heirs free of both income and estate tax. The trade-off is rigidity: it's irrevocable, you can't easily change it, and you typically can't be the trustee. ILITs also help provide liquidity to pay estate taxes or equalize inheritances among heirs. For most families well under the exemption, an ILIT is unnecessary complexity; it's a tool for genuinely large or illiquid estates.