What an ILIT Is
An ILIT is a trust that holds one or more life insurance policies on your life. You give up ownership of the policy. The trustee owns it and pays the premiums. When you die, the insurance company pays the death benefit to the trust. The trustee then follows the rules you wrote into the trust.
The word “irrevocable” means you cannot cancel the trust or take the policy back. That is the point. If you can take the policy back, the IRS treats you as its owner.
An ILIT has three roles. You are the grantor, the person who creates and funds it. The trustee manages it. The beneficiaries are the people who receive the money, often a spouse, children, or grandchildren.
An ILIT is one kind of irrevocable trust. Our page on the irrevocable trust in Georgia covers the wider tool. An ILIT is not the same as a revocable living trust. A revocable trust does not remove a policy from your taxable estate. Our guide on what assets should not be in a trust in Georgia explains why.
Why an ILIT Keeps Insurance Out of Your Taxable Estate
Federal law pulls life insurance into your taxable estate when you hold any “incident of ownership” in the policy at death (IRC § 2042). An incident of ownership is a right to control the policy. It includes the right to change the beneficiary, cancel the policy, borrow against it, or give it to someone else.
When the trust owns the policy, you hold none of those rights. So the death benefit is not part of your taxable estate.
Here is a simple example. Your home, savings, and business total $14,000,000. You also own a $5,000,000 policy in your own name. Your estate counts as $19,000,000. That is $4,000,000 over the $15,000,000 exemption. If an ILIT owns the policy instead, your estate counts as $14,000,000, and the policy adds no federal estate tax.
Two other facts help. Life insurance death benefits are generally income tax free to the person who receives them (IRC § 101(a)). And Georgia has no state estate tax. Georgia has not taxed estates since 2005. Only the federal tax applies.
Who Should Not Be the Trustee
You should not be the trustee of your own ILIT. A trustee controls the policy. If you control it, you hold an incident of ownership, and the death benefit comes back into your taxable estate.
This rule comes from federal tax law, not from a Georgia statute. Georgia law does not forbid it. The tax rule is what makes it a mistake.
Good choices are an adult child, a sibling, a trusted friend, or a professional trustee such as a bank or trust company. Pick someone who is organized. The trustee has real work to do every year.
New Policy or Existing Policy: The 3-Year Rule
There are two ways to get a policy into an ILIT. The trust can buy a new policy on your life. Or you can transfer a policy you already own.
A new policy bought by the trust is the cleaner path. You never owned it, so you never held an incident of ownership.
An existing policy triggers the 3-year rule. Under IRC § 2035, if you transfer a policy to the trust and die within 3 years, the death benefit is pulled back into your taxable estate. It is taxed as if you never gave the policy away. Our page on the 3-year rule for a life insurance trust covers it in full.
The 3-year clock runs from the date of the transfer to the date of death. A policy that stays in the trust for 3 full years before your death is outside the rule.
Plan ahead. If your health is poor, talk to an attorney before you move a policy. A new policy may not be an option, and a transfer made too late does not work.
How Premiums Get Paid: Crummey Notices
The trust needs money to pay the premiums. You give it that money as gifts each year. The 2026 annual gift tax exclusion is $19,000 per person who receives a gift. Gifts under that amount do not use up your lifetime exemption.
There is a catch. Under IRC § 2503(b), only a “present interest” gift qualifies for the annual exclusion. A present interest is one the person can use now. A gift to a trust is normally a future interest, because the beneficiary cannot touch it yet.
The fix is a Crummey notice. Each time you give money to the trust, the trustee sends each beneficiary a written notice. The notice says the beneficiary has a short time to withdraw their share. The trust document sets that time. If no one withdraws, the money stays in the trust and pays the premium.
If the trustee skips the notices, the gift may not qualify for the annual exclusion. That is why the trustee must keep records every year. Our list of common mistakes with a life insurance trust in Georgia shows what else goes wrong.
The trust should have its own bank account and tax ID number. Pay the premiums from that account, not from your own.
Moving an existing policy into the trust is also a gift. It may have to be reported on a federal gift tax return. Ask your attorney whether one is due.
What an ILIT Does Beyond Taxes
Tax savings are only one reason to use an ILIT. It can also do these things:
- Control timing. The trust can pay heirs over time instead of in one lump sum. That helps when a child is young or not ready to manage a large sum.
- Protect the money. Money held in a trust is often harder for a beneficiary’s creditors or a divorcing spouse to reach. The trust terms matter.
- Give the estate cash. The trustee can lend money to the estate or buy assets from it. That can keep the family from having to sell a home or business in a hurry.
- Skip probate. The trust, not your estate, receives the payout. A policy that names a living person also skips probate, so this is not the main reason to use an ILIT.
Can You Change an ILIT?
Usually not. An ILIT is built to be permanent. But Georgia law gives two limited paths.
The first is a court order. Under O.C.G.A. § 53-12-61, during your lifetime a court must approve a change to an irrevocable trust, or an end to it, if you and all the qualified beneficiaries agree and the trustee gets notice.
The second is decanting under O.C.G.A. § 53-12-62. If the trust document gives the trustee power to invade principal and does not opt out, the trustee can move the assets into a new trust with updated terms. You cannot be the one who does it. It has limits. For example, the new trust cannot add a person who was not already a beneficiary.
These paths are for fixing problems, not for changing your mind. Each one needs an attorney. A change that gives you back control of the policy can bring the tax problem back. Treat the first draft as final, and have an attorney review it before you sign.
Do You Actually Need an ILIT in Georgia?
Most Georgia families do not need an ILIT for tax reasons. Georgia has no estate tax, and the federal exemption is $15,000,000 per person under current law. A married couple can use up to $30,000,000 together. If your estate plus your policy stays well under that line, an ILIT saves no estate tax. It still costs money to set up and takes work every year.
An ILIT deserves a serious look in these cases:
- Your estate could pass the exemption once the death benefit is added.
- The exemption could drop. The $15,000,000 figure is current law, and laws can change. This matters most if your estate is close to the line.
- You want control. You want to decide when heirs get the money, or shield it from a beneficiary’s creditors or divorce.
- Your estate is mostly a business or real estate. Your family may need cash to pay taxes without selling it.
If none of these fit, naming a person as the beneficiary is usually simpler. If your spouse is not a U.S. citizen, an ILIT can also be one of the alternatives covered in our guide to the QDOT rule for non-citizen spouses.
For pricing, see what an ILIT costs in Georgia. For the full set of documents Georgia families use, start with our estate planning in Georgia page. A conversation with an estate planning attorney can show whether an ILIT fits your policy and your estate.
