Virginia Life InsuranceThere are certain instances in which a life insurance policy’s death benefit can be subject to estate taxes. One way to ensure that your policy will be exempt from federal and state taxes is to have the policy in an irrevocable life insurance trust also called an ILIT.

What is an ILIT?

Like any trust, an ILIT is a document that you can assign property to, such as a life insurance policy. Within the trust document are instructions that spell out how the property is meant to be handled, who the trustee of the account, and who the beneficiaries are.

The person who assigns the life insurance policy and other assets to the trust is the grantor. The trustee is the individual who manages the assets and trust, and the beneficiaries are the individual named inside who will receive benefits after the insured is deceased.

An ILIT isn’t called irrevocable for nothing. Once you transfer assets to the ILIT, you will not be able to get them out and use them for personal gain.


ILITs allow you to remove all instances of ownership from your life insurance policy, thereby helping to prevent tax liabilities. Because if you own your life insurance policy, then the death benefit could be considered part of your estate for estate tax purposes—not for probate. When an ILIT becomes the owner and beneficiary of the life insurance policy, there is almost no opportunity for that to happen. In addition, if you should pass away and your death benefit go directly from the insurance company to your spouse, then he or she passes, your death benefit will have increased your spouse’s total estate and, therefore, possible estate taxes. By keeping the benefit in a trust and paying out according to the trust schedule, you can avoid that and make sure more money gets passed on to your heirs.

Three-Year Look Back

In order for the policy not to be considered part of the estate of the insured, it must have been owned by the ILIT and/ or a separate individual from the insured for more than three years. If an insured owns his or her own policy and tries to transfer it to an ILIT one year before he or she passes away, the IRS will look back over the past three years and find the instance of ownership, which may lead to estate taxation although it will not lead to probate.

If you think an ILIT is the right planning move for your family and you’re ready to start shopping for Virginia life insurance policies to transfer into one, give us a call at Salzberg Insurance Agency.
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