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Life insurance offers you the opportunity to help prepare loved ones who depend on you financially. The death benefit in a life insurance policy can help provide your family monetary protection after you pass. An irrevocable life insurance trust (ILIT) is one way to protect your assets and provide more support for your beneficiaries. While Aflac doesn’t set up irrevocable life insurance trusts, you may choose to build an ILIT into our term or whole life insurance policy. Let’s dive deeper into how ILITs work and the benefits of setting one up.
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Before getting into trusts, it’s crucial to understand how life insurance works. Two common kinds of life insurance policies are term and whole life insurance. Here’s how each type of policy works:
Life insurance policies have a named beneficiary who receives the policy’s death benefit if the policyholder passes while it’s active.
Generally, life insurance proceeds are not taxable, but there are exceptions.
An estate tax is a tax based on the total value of assets in one’s estate. The specific percentages vary from state to state, but federal estate taxes kick in when one’s estate is more than $13.61 million.1 (As of 2025, but the amount changes each year.) When you inherit a death benefit after someone passes, this sum is included in the overall value of the estate and can tip it over the taxable threshold.
One of the best ways to help protect yourself from estate taxes after inheriting the death benefit in a life insurance policy is setting up a life insurance trust and naming the ILIT as the beneficiary in your plan.2
An irrevocable life insurance trust (ILIT) is a legal agreement where a life insurance policy is placed into a trust. This removes it from the grantor’s (policyholder) estate by making it an asset owned by the trust. Typically, the grantor is the person who creates the life insurance trust, or ILIT, and pays for the life insurance premiums. They assign a trustee who oversees managing the assets held within the trust, and beneficiaries who will receive the assets upon the grantor’s passing.2 An ILIT is a complex legal agreement and requires an estate attorney to set it up.
Don’t wait until it’s too late. Help cover yourself and your family with coverage from Aflac.
Get StartedThere are several key benefits an ILIT. Let's explore some of these life insurance trust advantages more in depth:
In an ILIT, the grantor pays for life insurance premiums and contributes additional income into the cash value of the plan to benefit beneficiaries in the future. In this situation, the IRS could consider contributions to the life insurance trust a gift.
However, gifts are only taxed if they are intended to benefit someone in the future. In this case, the life insurance trust (ILIT) is actively being used to pay premiums, so it is not considered a gift.2
It’s important to understand that the death benefit amount becomes a part of the policyholder’s estate value when a policyholder passes. Specific laws facilitate how the gross estate value is taxed and accessed. Setting up an irrevocable life insurance trust (ILIT) can keep the death benefit separated from your estate value, protecting it from additional taxes.2
Suppose the beneficiary in the life insurance trust is receiving government assistance via disability or Medicaid. In that case, the life insurance benefits must be received in a way that does not disturb the government’s help.2
For example, if the death benefit was paid in full immediately, the beneficiary may be forced to surrender the government assistance. With an ILIT, there is more control over how and when money is distributed to beneficiaries.2
Another valuable benefit of ILITs is mitigating the generation-skipping transfer tax. Usually, the IRS can tax up to 40% of gifts to people over 37.5 years younger than the gift giver. This tax is not possible within an ILIT, allowing grantors to help prepare grandchildren listed as beneficiaries financially.2
Finally, since trusts remove an asset from personal ownership, they’re safe from personal liability. That means if you get sued, for instance, the assets in the ILIT are off limits.
An irrevocable life insurance trust (ILIT) and a revocable life insurance trust (RLIT) are both estate planning tools designed to manage life insurance proceeds efficiently, but they differ in terms of flexibility and control. With an ILIT, the grantor relinquishes control over the trust assets, including the life insurance policy. This means that the terms of the ILIT can’t be changed, and the grantor can’t reclaim the assets.
On the other hand, a RLIT allows the grantor to maintain control over the trust assets, including the ability to modify or revoke the trust. While RLITs offer greater flexibility, they don’t provide the same level of asset protection and estate tax benefits as ILITs. Additionally, assets in an ILIT are typically shielded from creditors and estate taxes, making it a more robust tool for long-term wealth preservation.
To set up a life insurance trust or ILIT, you must determine who you’d like to be involved. You’ll have to choose who the grantor, trustees and beneficiaries are. We recommend working with a financial or estate planner to iron out the details in your irrevocable life insurance trust.
Aflac does not set up irrevocable life insurance trusts, but you can build an ILIT into one of our term or whole life insurance plans. Our comprehensive plans are cost-effective, portable, and can support your long-term financial planning goals. Chat with an agent today to determine which life insurance policy makes more sense for your coverage goals.
Get Started
Review all the major differences between term and whole life insurance, including costs, coverage, pros & cons.
Considering getting a life insurance plan? Find out what a life insurance beneficiary is, how the process works, and who can change the beneficiary on your policy.
Review all the major differences between term and whole life insurance, including costs, coverage, pros & cons.
Considering getting a life insurance plan? Find out what a life insurance beneficiary is, how the process works, and who can change the beneficiary on your policy.
1 Investopedia - Estate Tax: Rates, Exclusions, and Impact on Gift and Inheritance Taxes. Updated April 22, 2024. https://www.investopedia.com/terms/e/estatetax.asp. Accessed January 16, 2025.
2 Investopedia - 7 Reasons for an Irrevocable Life Insurance Trust (ILIT). Updated October 24, 2024. https://www.investopedia.com/articles/personal-finance/092315/7-reasons-own-life-insurance-irrevocable-trust.asp . Accessed January 16, 2024.
Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.
Aflac coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, Aflac coverage is underwritten by American Family Life Assurance Company of New York.
Aflac life plans -B60000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Not available in Delaware. B61000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC18B61JWO & ICC18B61JTO. In Delaware, Policies B61JWO, B61JTO. Q60000 series/Whole: In Arkansas & Delaware, Policy Q60100M. In Idaho, Policy Q60100MID. In Oklahoma, Policy Q60100MOK. Not available in Virginia. Q60000 series/Term: In Delaware, Policies Q60200CM. In Arkansas, Idaho, Oklahoma, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C. Not available in Virginia.
Aflac Final Expense insurance coverage is underwritten by Tier One Insurance Company, a subsidiary of Aflac Incorporated and is administered by Aetna Life Insurance Company. Tier One Insurance Company is part of the Aflac family of insurers. In California, Tier One Insurance Company does business as Tier One Life Insurance Company (NAIC 92908).
In AR, DE, ID, OK and VA: Policies ICC21-AFLLBL21 and ICC21-AFLRPL21; and Riders ICC21-AFLABR22, ICC21-AFLADB22, and ICC21-AFLCDR22. Aflac Final Expense policies are not available in New York.
Aflac WWHQ | Tier One | 1932 Wynnton Road | Columbus, GA 31999
Aflac New York | 22 Corporate Woods Boulevard, Suite 2 | Albany, NY 12211
This is a brief overview only. Coverage may not be available in all states. Benefits/premium rates may vary based on plan selected. Optional riders may be available at an additional cost. Plans and riders may also contain a waiting period. Refer to the exact plans and riders for benefit details, definitions, limitations and exclusions. For availability and costs, please contact your local Aflac agent/producer.
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