How it works.
The trust owns a life insurance policy on your life and is its beneficiary. You make gifts to the trust to cover the premiums, and the trustee pays them. At your death, the proceeds go to the trust and are managed or distributed under your terms — for your spouse, children, or anyone else you choose.
Why use one today.
With the federal estate tax exemption at $15 million per person in 2026, and indexed for inflation after that, most families don't need an ILIT to avoid estate tax. The reasons that remain are mostly about control:
Control
Pay proceeds over time, or for specific needs, instead of in one lump sum to a young adult.
Protection
Spendthrift terms can keep proceeds away from a beneficiary's creditors or a divorcing spouse.
Blended families
Make sure children from a prior relationship receive the policy as you intend.
Public benefits
Direct proceeds for a beneficiary on SSI or Medicaid into a special needs trust.
Large estates
For estates near or above the exemption, proceeds stay outside the taxable estate.
Liquidity
Provide cash to pay debts or keep a family business or ranch intact.
Rules that matter.
- Ownership. If you own the policy when you die, the proceeds are generally part of your taxable estate (26 U.S.C. § 2042). The trust, not you, should own it.
- The three-year rule. If you transfer an existing policy to the trust and die within three years, the proceeds are pulled back into your estate (26 U.S.C. § 2035). Having the trust buy a new policy avoids that.
- Premium gifts. Gifts to the trust can qualify for the annual gift-tax exclusion — $19,000 per recipient in 2026 — when beneficiaries are given a temporary right to withdraw them, usually through written notices.
- It's irrevocable. You can't change beneficiaries the way you could on a policy you own, so the terms are drafted with flexibility in mind.
Pricing.
Trusts are quoted after a consultation, because the right design depends on your family, your property, and your goals. The documents that usually accompany a trust are flat-fee:
Texas
New Mexico
Part 1 of the NM Advance Health-Care Directive$150
Part 2 of the NM Advance Health-Care Directive$100
Flat fees are per person and cover preparation of each document. The first hour of an estate planning consultation is free; if a consultation runs longer than one hour and you don't purchase an estate planning package, additional time is $300 per hour, prorated to the nearest quarter hour. Court filing and county recording fees, if any, are separate. Prices effective through December 31, 2027.
Common questions.
Do I need an ILIT if my estate is under $15 million?+
Can I move my existing policy into the trust?+
Who should be the trustee?+
Texas estate planning services are provided by Jeff Barnett, Of Counsel (Texas Practice), of Barnett & Leuty, PC, Austin, Texas, licensed in Texas. New Mexico estate planning services are provided by Shawn Barnett, Managing Attorney, licensed in New Mexico. This page provides general information, not legal advice; reading it does not create an attorney-client relationship.