The Long Game Understanding Irrevocable Life Insurance Trusts (ILITS)
Feb 27, 2026
Ben Lake, CFA® and CFP®, a wealth and estate planner, explains Irrevocable Life Insurance Trusts (ILITs) for high-net-worth families. He covers why liquidity matters for estate taxes. He outlines how ILITs keep death benefits out of taxable estates. He compares policy types, funding methods, and who most benefits from ILITs.
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Illiquidity Turns Estate Tax Into An Emergency
- Estate taxes create massive liquidity risk for owners of illiquid assets like private businesses and real estate.
- At 40% federal tax above the exemption, Thomas gives an example where $70M estate leads to ~$28M tax that must be paid quickly.
Put Life Insurance Inside An ILIT
- Use an Irrevocable Life Insurance Trust (ILIT) to keep life insurance proceeds outside your taxable estate.
- Ben explains that if life insurance is owned personally the death benefit gets included and can trigger additional estate tax.
Fund The ILIT Strategically To Pay Premiums
- Fund the ILIT with gifts so the trust can pay premiums, and include those gifts in your lifetime exemption calculation.
- Ben describes options: single-pay, annual gifts (including $19k per beneficiary), or multi-year (e.g., 10-pay) funding.