5 Situations Where an ILIT May Be Right for You

An irrevocable life insurance trust (ILIT) is a legal structure that allows you to transfer ownership of a life insurance policy to a trust. You specify exactly how you want the life insurance proceeds to be distributed, and the trustee, who manages the policy, ensures those wishes are carried out. 

Once you transfer the policy, you cannot reclaim ownership. The trust officially owns the policy while you continue to pay the premiums. However, by using an ILIT, your policy may gain several tax and legal protections that can support your estate planning goals. 

With this in mind, here are five situations where an ILIT might be a smart financial move. 1

1)You want to minimize estate taxes

Large estates may be taxed on amounts over the federal estate tax threshold ($13.99 million per person in 2025).1 Similarly, states with estate taxes may impose their own thresholds. 

Life insurance death benefits are typically included in your estate unless the policy is placed within an ILIT. 

However, the IRS typically requires a three-year waiting period. This means that you must not pass away within three years of placing the policy in the ILIT for the life insurance payout to be excluded from your estate. If you pass away after this period, the life insurance payout won’t count toward your estate, which can help reduce or even eliminate estate taxes. 

That said, you are still responsible for paying premiums on the life insurance policy. If you are in good health, you may want to consider a life insurance medical exam, which could potentially lower your premiums.

2)You want to protect your assets

Your life insurance death benefit and any accumulated cash value could be at risk if you default on debt, pass away with outstanding liabilities, or have legal action taken against you. 

State laws vary regarding protection from creditors, but a properly structured ILIT can help shield your policy from such claims. As a result, creditors may not be able to liquidate any portion of your life insurance policy to satisfy your debts or other financial obligations.

3)You want to avoid generation-skipping transfer (GST) tax

If you want to leave a gift to your children or grandchildren, an ILIT could be a good option. This is because using an ILIT may allow you to avoid the generation-skipping transfer tax (GSST), by using gifts to the trust to purchase a life insurance policy. The proceeds from the death benefit are typically excluded from your estate, which means multiple generations of your family could benefit from the money, free of both estate and GST tax.

4)You want to provide for your kids’ college education

ILITs allow you to specify the conditions under which your life insurance policy pays out, including how and when the funds are distributed. This flexibility makes an ILIT an excellent vehicle for funding your children’s college education. 

For example, you can stipulate that a portion of the death benefit be paid out annually, to be used exclusively for tuition, textbooks, and other related costs. This approach ensures that your children receive financial support without the risk of mismanaging a large lump sum.

5)You have government benefit eligibility concerns

Eligibility for government benefits such as Social Security disability income and Medicaid often requires that your total assets remain below certain thresholds. A life insurance policy could push you above that threshold, potentially disqualifying you from benefits. 

By placing the life insurance policy in a properly structured ILIT, the policy is no longer considered part of your assets for the purposes of benefit eligibility. This can help you maintain access to important government programs if you need them. 

The bottom line

An ILIT can address a variety of estate planning and financial objectives. From reducing estate taxes to protecting assets from creditors, an ILIT offers valuable protection. It also helps manage asset distribution in blended families, provides for college costs, and helps maintain eligibility for government benefits. 

To determine if an ILIT is right for you, consult with an attorney who specializes in estate planning. With the right guidance, you can structure an ILIT to enjoy the financial and legal benefits it offers.

1 IRS.gov – Estate Tax. Updated Oct. 29, 2024. https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax Accessed Apr. 3, 2025 

 Aflac does not offer ILIT plans. Aflac does not tax advice give tax advice, and recommends speaking to a tax advisor to point you toward your goals.  

Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent. 

Aflac coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, Aflac coverage is underwritten by American Family Life Assurance Company of New York. 

Aflac life plans – A68000 series: Term Life Policies: In Arkansas, Idaho, Oklahoma, Oregon, Texas, Pennsylvania & Virginia, Policies: ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68200, A68300 & A68400. In New York, Policies NY68200, NY68300 and NY68400. Whole Life Policies: In Arkansas, Idaho, Oklahoma, Oregon, Texas, Pennsylvania & Virginia, Policies: ICC1368100. In Delaware, Policy A68100. In New York, Policy NYR68100. B60000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Not available in Delaware. Q60000 series/Whole: In Arkansas & Delaware, Policy Q60100M. In Idaho, Policy Q60100MID. In Oklahoma, Policy Q60100MOK. Not available in Virginia. Q60000 series/Term: In Delaware, Policies Q60200CM. In Arkansas, Idaho, Oklahoma, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C. Not available in Virginia. 

Receipt of accelerated death benefits may affect eligibility for public assistance programs. Benefits may also be taxable, and are not expected to receive the same favorable tax treatment as other types of accelerated death benefits that may be available. 

Aflac Final Expense insurance coverage is underwritten by Tier One Insurance Company, a subsidiary of Aflac Incorporated and is administered by Aetna Life Insurance Company. Tier One Insurance Company is part of the Aflac family of insurers. In California, Tier One Insurance Company does business as Tier One Life Insurance Company (NAIC 92908). 

In AR, DE, ID, OK and VA: Policies ICC21-AFLLBL21 and ICC21-AFLRPL21; and Riders ICC21-AFLABR22, ICC21-AFLADB22, and ICC21-AFLCDR22. Aflac Final Expense policies are not available in New York. 

Aflac does not offer Universal or Variable Universal life insurance. 

Coverage may not be available in all states, including but not limited to DE, ID, NJ, NM, NY, VA or VT. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations, and exclusions. 

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Aflac New York | 22 Corporate Woods Boulevard, Suite 2 | Albany, NY 12211 

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Z2500162                                                                                               Exp. 4/26 

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