Should You Include An ILIT in Your Estate Plan?

 Posted on June 22, 2025 in Estate Planning

When planning your estate in Texas, one of your main goals may be to protect your loved ones and minimize taxes. An Irrevocable Life Insurance Trust (ILIT) is a powerful tool that can help you do both. It can be especially appropriate if you have a large life insurance policy or want to ensure your assets are used wisely after your death. Understanding how ILITs work and when they make sense can help you make informed decisions about protecting your family's financial future. An experienced Flower Mound, TX estate planning attorney can help you incorporate an ILIT into your estate plan.

What is an ILIT?

An ILIT is created to own and control life insurance policies during your lifetime and manage the proceeds after your death. Once established, it is irrevocable, meaning that you generally cannot change or revoke the trust terms except under very limited conditions. The ILIT becomes the owner of the life insurance policy, and the trust itself is typically named as the beneficiary. This separation removes the policy from your taxable estate. 

What Are the Benefits of An ILIT?

Tax Advantages

While Texas has no state estate tax, federal estate taxes can still apply to large estates. In 2025, the federal estate tax exemption is expected to drop significantly. If your estate—including your life insurance—is worth more than the exemption, your heirs could face a significant tax bill. An ILIT keeps the life insurance proceeds out of your estate, thereby reducing your federal estate taxes.

Protecting Your Beneficiaries

With an ILIT, you can control how and when your beneficiaries receive the funds. For example, you can prevent a young adult from receiving a large sum all at once or restrict access if a beneficiary has financial problems, special needs, or addiction issues.

Providing Liquidity

Texas estates with valuable but non-liquid assets may struggle to pay taxes or debts without selling off part of the estate. An ILIT-funded life insurance policy can provide immediate cash to help your heirs cover those costs without losing family assets.

Call a Flower Mound, TX Estate Planning Attorney

Making an estate plan that protects you and your family’s assets for your children and grandchildren can be one of the most rewarding things you can do to plan for the future. Yet it requires thoughtful consideration of the many available options and of your goals. That is when it can help to speak to an experienced Denton County, TX estate planning attorney. At Colbert Law Group PLLC attorney Stephen Colbert has significant experience not only as an attorney but as an administrative judge. Call the law firm at 972-724-3338 for a consultation.