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Gregory S. DuPont June 9, 2022

When it comes to estate planning, there are a number of different tools that you can use to protect your assets and ensure that your loved ones are taken care of after you're gone. One such tool is a trust. If you're like most people, the thought of setting up a trust might bring to mind images of wealthy families with complicated financial arrangements. However, trusts can be an important tool for people of all income levels, including small business owners. One type of trust that can be particularly helpful for businesses is an irrevocable life insurance trust (ILIT).  This type of trust has several benefits, which is why it's become more and more popular among financial professionals and their clients. An ILIT is a type of trust that cannot be modified or annulled after creation. If you are looking to create a trust that you can alter throughout your lifetime, a revocable living trust might be a better option for you.

An irrevocable life insurance trust is created to own and control a life insurance policy while the owner is still alive, and to manage and distribute the benefits that are paid out at death. 

There are usually three parties involved with an ILIT: 

  • The grantor who funds the ILIT,  

  • The trustee who oversees and manages the ILIT, and, 

  • The beneficiaries who receive the funds from it.  

An ILIT serves as a valuable tool, offering several legal and financial advantages to an heir.  



An irrevocable life insurance trust can help ensure that your assets are distributed according to your wishes. If you name your children as beneficiaries of your life insurance policy, without a trust, they likely won’t receive the death benefits until they reach adulthood. However, if the policy is held in an irrevocable life insurance trust, you can specify when and how the death benefits should be distributed. For example, you can leave instructions for the trustee to distribute a third of the funds when the child is 18, another third at age 25, and the last third at age 35. 

Another benefit of using an irrevocable life insurance trust is that it allows the grantor to make annual gifts to beneficiaries that are excluded from incurring estate tax consequences. On the flip side, ILITs have become a popular way to help fund estate taxes that have been passed onto beneficiaries.

Another key advantage of an irrevocable life insurance trust is that it can provide asset protection for the beneficiaries. This means that the assets in the trust are shielded from creditors, lawsuits, and other legal claims. Creditors are not able to access the death benefits if your life insurance policy is held in an irrevocable trust.  



An irrevocable life insurance trust can be a great way to provide for a family business. The proceeds from the life insurance policy can be used to help keep the business running in the event of the death of a key family member. An ILIT can help maintain family control of the business and create a smooth transition of ownership. Stock in the business can also be purchased through the trust to be held by the family. This allows for children to be given control of the business without having to wait for the death of the grantor’s spouse. The stock purchased through the ILIT can be removed from the spouse’s share and would no longer be taxed at its appreciated value.

An ILIT can also offer favorable treatment to properties used in the family business. By putting property into the trust, the grantor is able to reduce estate taxes. If the grantor chooses to go this route, the Internal Revenue Code (IRC) deems that the properties must continue to be used for the business for a period of time after the grantor’s death.

Irrevocable life insurance trusts may seem complicated. But when drafted by an experienced estate planning attorney, they are one of the most flexible tools in your estate planning arsenal. Now is the time to consult a financial professional to see how this tool can work for you and your family. 


Read more about the different types of trusts in our Consumer’s Guide to Estate Planning in Ohio