Life insurance is a cornerstone of many Miami estate plans, but few owners realize the death benefit can be pulled into the taxable estate of larger estates. The Irrevocable Life Insurance Trust, or ILIT, is the classic tool to address that. This checklist explains what an ILIT does, who actually needs one, and the tradeoffs to weigh.
What an ILIT Is
An ILIT is an irrevocable trust that owns a life insurance policy instead of you owning it personally. Because you do not own or control the policy, the death benefit can be kept out of your taxable estate for federal purposes. The trust then receives the proceeds and distributes them to your beneficiaries under the terms you set. Florida’s trust law (Chapter 736) governs these trusts, and Florida itself imposes no state estate or inheritance tax, so the relevant tax concern is federal.
What an ILIT Accomplishes
- Removes the death benefit from your taxable estate when structured and administered correctly, useful for high-net-worth Miami families approaching the federal exemption.
- Provides liquidity so heirs can cover expenses or equalize inheritances without rushing to sell a home, condo, or business.
- Controls the payout by holding funds for minors or spendthrift beneficiaries rather than handing a lump sum to someone unprepared to manage it.
- Keeps proceeds private and outside the Miami-Dade probate process.
The Tradeoffs to Understand
- It is irrevocable. You generally cannot simply undo it or take the policy back, so the decision deserves care.
- You give up control. The trustee, not you, owns and administers the policy.
- Administration is ongoing. Premium payments are typically made as gifts to the trust, often paired with Crummey notices to beneficiaries to qualify for the annual gift tax exclusion.
- The three-year rule. If you transfer an existing policy into the ILIT and die within three years, the proceeds can be pulled back into your estate. Buying a new policy inside the ILIT avoids this.
Who Actually Needs One
An ILIT is not for everyone. Many Miami families with estates comfortably under the federal exemption get most of what they need from simple beneficiary designations and a revocable trust. The ILIT earns its keep when your combined assets, including the death benefit, approach or exceed federal thresholds, or when you want strong control over how a large payout reaches heirs.
Your ILIT Checklist
- Estimate your taxable estate, including the policy’s death benefit.
- Decide on the trustee, someone independent who can handle premiums and notices reliably.
- Choose new policy vs. transfer, keeping the three-year rule in mind.
- Plan the funding mechanics, including annual gifts and Crummey notices.
- Coordinate beneficiaries so the ILIT, your will, and your revocable trust work together.
- Document a maintenance routine so the trust is administered correctly every year.
Talk to a Florida Attorney
ILITs are powerful but unforgiving of administrative mistakes, and they should only be used when the tax and control benefits genuinely apply to your situation. Before creating one, consult a licensed Florida estate planning attorney who can assess whether an ILIT fits your family and draft it to current Florida and federal standards.
For more on our Florida practice, see our overview of estate planning in Palm Beach. Morgan Legal Group's affiliated New York office also handles New York probate and estate administration.
