---
title: What is a life insurance trust (ILIT) | Coverfolk
url: https://coverfolk.com/answers/life-insurance-trust
updated: 2026-10-08
---

# What is a life insurance trust (ILIT)?

Updated October 8, 20263 sourcesCoverfolk team[Fact checked](/editorial-standards)

The short answer

An ILIT is an irrevocable life insurance trust. The trust owns your policy, so the payout can stay out of your taxable estate and go to people on the terms you set.

A trust is a legal setup that holds money or property for others. With an ILIT, the trust owns the life insurance policy. A trustee runs it. The trustee cannot be you.

Irrevocable means you cannot change or end the trust once you make it. That is the trade off. You give up control to get the tax benefit.

Why do it? The IRS counts a policy in your estate if you hold rights like changing the beneficiary or borrowing against it. If the trust owns the policy instead, the payout is not counted in your estate.

Timing matters. If you move a policy you already own into the trust and die within 3 years, the IRS still counts it. Some people have the trust buy a new policy to avoid this.

You usually give the trust money each year to pay the premiums. These gifts follow special rules. Work with an estate lawyer to set it up right.

* The trust owns the policy, not you
* Someone other than you is trustee
* You cannot undo it later
* Moving an old policy in starts a 3 year clock
* The trust rules decide who gets the money

## More questions

### Who needs an ILIT?

Mostly people with large estates that could owe federal estate tax. In 2026 the IRS filing threshold is $15,000,000. Most families are below that.

### Can an ILIT protect money for kids?

Yes. The trust can say how and when the money is paid out. This helps if your kids are young.

### Can I be the trustee?

No. The insured person should not be the trustee. Holding control can pull the policy back into your estate.

## Words to know

[Beneficiary](/glossary)
:   The person you name to get the death benefit when you die. You can name more than one.

[Estate](/glossary)
:   All the money and property a person owns, especially at death.

[Premium](/glossary)
:   The amount you pay an insurance company for your policy.

## Sources

1. [American Bar Association: Irrevocable life insurance trusts](https://www.americanbar.org/content/dam/aba/publishing/aba_tax_times/13sum-ptr3-abrahams.pdf)
2. [IRS: Instructions for Form 706](https://www.irs.gov/instructions/i706)
3. [IRS: Frequently asked questions on estate taxes](https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-estate-taxes)