Estate Planning Tips – Irrevocable Life Insurance Trusts

Life Insurance

Life Insurance is an often overlooked tool used in your estate plan to provide for your loved ones while providing peace of mind to you. While life insurance alone will provide funds for you named beneficiaries, we sometimes go a step further by creating an irrevocable life insurance trust (ILIT) to hold the policy. This ILIT offers additional estate planning benefits.

Asset protection

When should you think about using an ILIT? If you’re concerned about your heirs’ money management skills, an ILIT may be the answer. It allows your beneficiaries (named by the ILIT) to receive the proceeds from the policy in a measured manner because they don’t receive the proceeds directly. The ILIT receives the proceeds and controls when they receive proceeds. This way, you can condition when funds may be distributed to a beneficiary. Let’s say college is important to you and a beneficiary drops out of school. The trustee of the ILIT is able to withhold funds from the beneficiary. The same rule holds true if a substance abuse issue arises. The trustee may use the funds to support (e.g. pay for a rehabilitation program) the beneficiary in a controlled manner..

A properly drafted ILIT can also protect trust assets against your and your beneficiaries’ creditors, particularly if it’s established in a state with favorable asset protection laws.


As the name says, an ILIT is irrevocable which presents some significant limitations you need to be aware of. After you transfer a policy to the trust, you can no longer:

  • Change or add beneficiaries,
  • Assign, surrender or cancel the policy, or
  • Borrow against or withdraw from the policy’s cash value.

In addition, you’re not allowed to alter the ILIT’s terms or act as trustee. Nevertheless, you can design the trust to adapt to changing circumstances and provide that children or grandchildren born after you establish the trust be automatically added as beneficiaries.

Estate Planning Kansas City is an estate planning attorney in Overland Park providing wills and trusts to those in Leawood, Lenexa, Olathe, Prairie Village, Roeland Park and Shawnee and now serving Parkville, Riverside and North Kansas City from our Briarcliff Office. Each situation is different and this article is intended for informational purposes only and should not be taken as legal advice. The choice of a lawyer is an important decision and should not be placed solely upon the base of this post