Why Choose Law Offices of Rozsa Gyene for Life Insurance Trusts?
What is an Irrevocable Life Insurance Trust?
If you own a life insurance policy with a significant death benefit, an irrevocable life insurance trust may be of substantial benefit to you.
A life insurance policy owned by you on your life at the time of death will be included in your taxable estate and subject to federal estate tax if your estate is the beneficiary or you possess certain ownership rights ("incidents of ownership").
A commonly used technique to avoid inclusion in your estate as the insured, is to create an irrevocable life insurance trust (ILIT) to own the policy and receive the policy proceeds on your death.
A properly drafted and administered life insurance trust removes the life insurance proceeds from the gross estate of the insured, while also making those proceeds available as a source of liquid funds for the payment of estate taxes and other obligations.
2026 Federal Estate Tax: Why ILITs Matter Now
On January 1, 2026, the federal estate tax exemption increases to $15 million per individual ($30 million for married couples). Estates exceeding this threshold face a 40% federal estate tax on the excess.
2026 Individual Exemption
2026 Married Couple Exemption
Federal Estate Tax Rate
The ILIT Solution: Life insurance proceeds held in an ILIT are not included in your taxable estate. A $5 million policy inside an ILIT could save your heirs $2 million in estate taxes (40% × $5M).
The Estate Tax Liquidity Problem
For families with significant real estate holdings in Montecito or Beverly Hills, an ILIT is the primary tool used to provide the liquidity needed to pay federal estate taxes without forcing a fire-sale of the family home.
Example: $20M Montecito Estate
- Estate Value: $20,000,000 (primarily real estate)
- 2026 Exemption: $15,000,000
- Taxable Amount: $5,000,000
- Estate Tax Due: $2,000,000 (40%)
- Due Date: 9 months after death
Problem: Where does the family get $2M cash in 9 months without selling the home?
ILIT Solution: A $2.5M life insurance policy inside an ILIT provides immediate, tax-free liquidity.
Crummey Notices: The Critical ILIT Requirement
For an ILIT to work properly, annual premium payments must qualify for the $18,000 gift tax exclusion (2024). This requires sending formal "Crummey Notices" to beneficiaries each time a premium is paid.
What is a Crummey Notice?
A written notice informing beneficiaries that a gift has been made to the trust and they have a limited time (typically 30-60 days) to withdraw their share. This converts the gift into a "present interest" qualifying for the annual exclusion.
Why It Matters
Without proper Crummey Notices, premium payments are considered "future interest" gifts that consume your lifetime gift tax exemption. For a $50,000 annual premium, this could waste $50,000 of your $13.99M exemption every year.
Our Service: We draft compliant Crummey Notices and maintain a calendar system to ensure they're sent with each premium payment.
Warning: The 3-Year Rule: Plan Ahead
Under IRC § 2035, if you transfer an existing life insurance policy to an ILIT and die within 3 years of the transfer, the policy proceeds are pulled back into your taxable estate—defeating the entire purpose of the ILIT.
Risky Approach
Transfer existing $5M policy to ILIT → Die 2 years later → $5M included in estate → $2M tax bill
Recommended Approach
ILIT purchases NEW policy directly → No 3-year rule → $5M excluded from estate regardless of when death occurs
Best Practice: Have the ILIT trustee apply for and own the policy from day one. We coordinate this process with your insurance advisor.
ILIT vs. Revocable Living Trust: Different Tools, Different Goals
| Feature | ILIT (This Page) | Revocable Living Trust |
|---|---|---|
| Primary Purpose | Remove assets from taxable estate | Avoid probate court |
| Revocability | IRREVOCABLE (cannot change) | Revocable (can amend anytime) |
| Estate Tax Benefit | YES - removes assets from estate | NO - assets still in your estate |
| Target Client | Estates over $15M (2026) | Any estate wanting to avoid probate |
| Ongoing Requirements | Crummey Notices, separate trustee | Minimal - you remain trustee |
| Typical Cost | $2,500 - $5,000+ | $575 - $795 |
Most HNW clients need BOTH: A revocable living trust for probate avoidance, plus an ILIT for estate tax planning. We coordinate both documents to work together seamlessly.
Who Needs an ILIT?
An Irrevocable Life Insurance Trust makes sense if:
Strong Candidates
- Estate exceeds $15M (individual) or $30M (couple)
- Significant life insurance death benefit ($1M+)
- Real estate-heavy portfolio (illiquid assets)
- Business owners with buy-sell agreements
- Families in Montecito, Beverly Hills, Hope Ranch, Pasadena
May Not Need ILIT
- Estate under $10M (comfortable margin)
- Small life insurance policies (<$500K)
- No liquidity concerns
- Primary concern is probate avoidance only
- A Standard Living Trust may suffice
ILIT Planning for Los Angeles & Santa Barbara Estates
Creating an effective ILIT requires sophisticated legal expertise and attention to detail. Our attorneys have over 25 years of experience drafting trusts that meet complex IRS requirements while maximizing protection for your beneficiaries.
We ensure your ILIT is properly structured to avoid common pitfalls that could trigger estate tax inclusion, such as retained incidents of ownership or improper Crummey powers. Every detail matters when protecting millions in life insurance proceeds.
Benefits of an ILIT
Estate Tax Protection
Remove life insurance proceeds from your taxable estate, potentially saving millions in estate taxes for high-value policies.
Asset Protection
Shield insurance proceeds from creditors, lawsuits, and divorce proceedings that could otherwise claim these funds.
Liquidity for Estate
Provide immediate cash to pay estate taxes, debts, and expenses without forcing the sale of family assets or businesses.
Generation Skipping
Pass wealth to multiple generations while minimizing transfer taxes through dynasty trust provisions.
Controlled Distribution
Set specific terms for how and when beneficiaries receive funds, protecting them from poor financial decisions.
Wealth Preservation
Maximize the value passed to heirs by eliminating up to 40% estate tax on life insurance proceeds.
The Tax Savings Are Substantial
Without ILIT
Life Insurance Policy
- Included in taxable estate
- Subject to 40% estate tax
- $800,000 lost to taxes
- Only $1.2M to beneficiaries
With ILIT
Life Insurance Policy
- Excluded from estate
- Zero estate tax
- Full amount preserved
- $2M to beneficiaries
In this example, an ILIT saves your family $800,000 in estate taxes!
Our ILIT Process
Initial Review
We review your life insurance policies, estate value, and family situation to determine if an ILIT is right for you. If your estate exceeds the federal limit, an ILIT is essential for estate tax planning. For those already managing an existing estate after a loved one\'s passing, visit our Trust Administration Hub to understand how insurance proceeds are handled during the settlement process.
Trust Design
Create a customized trust structure that meets your specific needs and maximizes tax benefits.
Document Drafting
Prepare comprehensive trust documents that comply with all IRS requirements and state laws.
Policy Transfer
Guide you through transferring existing policies or purchasing new ones through the trust. We coordinate ILITs with your broader estate plan to ensure all assets are properly titled. If you discover assets that were left outside your trust, see our Heggstad Petition guide to learn how we can rescue unfunded trust assets through the court.
Ongoing Administration
Provide guidance on Crummey notices, premium payments, and trust administration requirements.
Protect Your Life Insurance Benefits Today
Don't let estate taxes diminish what you leave behind
Book An AppointmentDraft your Trust over the phone with an Attorney:
(818) 291-6217Is An Irrevocable Life Insurance Trust Right For You?
ILIT Services for High-Net-Worth Families
We provide Irrevocable Life Insurance Trust planning for families in Southern California's premier wealth corridors:
Los Angeles County Premier Areas:
Beverly Hills (90210), Pasadena, San Marino, Arcadia, La Cañada Flintridge, Calabasas, Bel Air, Pacific Palisades, Brentwood, Encino, Tarzana
Santa Barbara County Premier Areas:
Montecito (93108), Hope Ranch, Santa Barbara, Santa Ynez Valley (vineyard estates)
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