Florida Irrevocable Life Insurance Trust (ILIT)

The Short Answer

An irrevocable life insurance trust, or ILIT, is an irrevocable trust that owns a life insurance policy on your life. Because the trust owns it rather than you, the death benefit is not part of your taxable estate, so the full payout passes to your family free of federal estate tax. The trust receives the money and uses it the way you direct, often to hand your family immediate cash or to cover an estate-tax bill, without the proceeds themselves being taxed.

The Problem It Solves

Here is the surprise that catches large estates. A life insurance policy you own is included in your estate. For an estate above the federal exemption, up to 40% of that death benefit can be lost to estate tax, the exact opposite of what the insurance was meant to do. Worse, families are sometimes forced to sell a home or a business quickly just to pay the tax. An ILIT keeps the policy out of your estate, so the benefit arrives whole and gives your family the cash to avoid a fire sale.

How It Works

• The trust owns the policy and is its beneficiary. Often the ILIT buys a new policy directly, so there is no transfer to worry about.
• You fund the premiums by gifting money to the trust each year. Using Crummey withdrawal rights, those gifts qualify for the annual gift-tax exclusion, and the trustee pays the premium.
• At your death, the proceeds go into the trust, outside your estate, and pass to your family under your terms.

One rule matters more than the rest. If you move an existing policy into an ILIT and die within three years, the benefit is pulled back into your estate. Buying a new policy inside the ILIT avoids that, and we plan around it when an existing policy is involved.

When an ILIT Is Worth It (and When It Is Not)

An ILIT earns its keep for larger estates that may owe federal estate tax, for families that need liquidity to avoid selling a home or business under pressure, and for equalizing inheritances, say one child inherits the company and the others receive insurance. For most families, whose estates are well under the roughly $15 million federal exemption, an ILIT is unnecessary, and a simpler plan does the job. An ILIT is one tool in the broader irrevocable trust toolkit, alongside cousins like the qualified personal residence trust for a home and the charitable remainder trust for appreciated assets, and we recommend it only when it genuinely fits.

Practice pointer. Before I recommend an ILIT I ask for the policy illustration, because a policy whose premiums the family cannot keep paying for as long as the insured lives protects nobody, and the trust is only as good as the policy inside it.

Who Pays the Premiums, and What Happens If One Is Missed?

You pay the premiums indirectly, by giving the trustee money each year, and the trustee pays the insurance company, so a missed premium is the trustee’s miss even though the money came from you. A common question I hear is, “If the trustee lets the policy lapse, can I sue?” The answer depends on the trust document and the facts, and the Florida case told at the bottom of this page is the reason I take that question seriously when the trust is drafted rather than after a notice arrives.

Florida law also lets an ILIT trustee be relieved of several duties for a policy on the life of the person who funds the premiums, including deciding whether the policy remains a proper investment, investigating the insurer’s financial strength and deciding whether to exercise a policy option. The relief applies when the trust document refers to the statute or the trustee gives the beneficiaries notice, and a beneficiary who objects in writing within 30 days of receiving the notice keeps those duties in place. An ILIT form that refers to that section leaves nobody responsible for watching the policy unless the document names someone.

Practice pointer. I write into the trust who receives the insurer’s premium and lapse notices and who reviews the policy each year, because the statute allows a document to leave both jobs unassigned.

How Much Does an Irrevocable Life Insurance Trust Cost in Florida?

An irrevocable life insurance trust is a flat fee quoted at consult, because the scope moves with whether the trust buys a new policy or takes over an existing one and with how the proceeds are held for the family afterward. People ask me about price and how long it takes, and the honest answer is that the trust itself can be signed once it is drafted, while the policy is issued on the insurance company’s underwriting schedule, which neither of us controls. Government costs are additional and passed through at cost, and posted fees are honored for 90 days. The premiums go to the insurance company and are separate from the legal fee.

Frequently Asked Questions

Common Situations

The business owner. A founder’s estate is mostly tied up in his company, well over the federal exemption. An ILIT holds a policy whose tax-free payout gives his family the cash to pay the estate tax, so they keep the business instead of selling it in a hurry.

Equalizing the kids. One daughter will run the family business; the other two are not involved. An ILIT funds insurance for the two so all three children are treated fairly, without carving up the company.

The estate that did not need one. A couple worth $4 million asks about an ILIT after reading about it. Because they are far under the federal exemption, they owe no estate tax, and we steer them to a simpler plan instead of selling them complexity.

Sources of Law

• IRC §2042 (life insurance included in the estate when the insured holds incidents of ownership); §2035 (the three-year rule on transferred policies); the annual gift-tax exclusion and Crummey withdrawal rights (Crummey v. Commissioner). (retrieved 2026-06-08)
• Florida Trust Code, Fla. Stat. ch. 736 (irrevocable trusts). Florida has no state estate tax; this is a federal estate-tax tool.
• Fla. Stat. §736.0902 (annotated) (nonapplication of the prudent investor rule to life insurance on a qualified person; (1)(b) to (f) apply only where the instrument refers to the section or the trustee gives notice under (5)(b), and a written objection within 30 days after receipt keeps the duties in place; (3) no trustee liability for a loss on such a contract). Read 2026-10-15 from the 2026 statute text.
• Sanders v. Citizens National Bank of Leesburg, 585 So. 2d 1064 (Fla. 5th DCA 1991) (bank trustee of an unfunded irrevocable life insurance trust created in 1981 repeatedly paid premiums late, the largest policy was cancelled, the replacement cost more because the insured’s health had declined, and the settlor’s own suit was dismissed because he had kept no interest in the trust; the beneficiaries sued separately). The case was decided under pre-Trust-Code law. Opinion text read in full 2026-10-15.

What I Have Seen Happen to a Policy Nobody Watched

I have come across a Lake County case from 1991 that shapes how I draft the notice clause in every one of these trusts. In 1981 a man set up an irrevocable life insurance trust for his wife and children, with a local bank as trustee, and its purpose was to pay the estate tax when he died. The policies did not carry themselves, so he sent the bank money from time to time to pay the premiums without dipping into the policies’ cash value, which is how most of these trusts are run.

About three years in, the bank began paying premiums late, and it kept doing so. The largest policy in the trust was cancelled. By then his health had declined, so the only replacement the bank could find cost more and carried worse terms. When he learned what had happened he refused to fund the new policy, the bank drained the cash value of the remaining policies to repay itself for the replacement, and then it resigned as trustee. He sued, and the court threw his case out, because he had given the policies away irrevocably and kept no interest a court could protect. His wife and children brought their own suit, and the reported opinion does not say how theirs ended.

The turn in that story is the order of events. The bank’s first missed premium was a fixable problem while he was still healthy enough to buy coverage on the old terms, and by the time he discovered it the problem had become a permanent one. A trust that required the bank to send him a copy of every premium notice and every lapse warning would have told him in the first month, while the original coverage could still be saved. A notice clause adds nothing to the fee, and the trust is a flat fee quoted at consult either way.

Practice pointer. I name in the trust a person other than the trustee who receives the insurer’s notices, usually the insured or an adult child, because the person paying the premiums and the person watching the policy should not have to be the same institution.

Avoid assuming the person who funds an ILIT can step in when the trustee fails. Giving up control is what keeps the policy out of the taxable estate, and in that 1991 case giving up control also meant giving up the right to sue.

An honest limit belongs here. The case was decided in 1991, before the Florida Trust Code took effect in 2007, and the court decided it on the complaint as written, so I would not read it as settling every question a settlor might raise today. What it shows is the cost of finding out late, and that part has not changed.

Kevin D. Klagge, Esq., admitted in Florida since 2012. General information rather than advice on your situation.

Updated on October 15, 2026. Reviewed by Kevin D. Klagge, Esq., Fla. Bar No. 99502. General information about federal and Florida law, not legal or tax advice, and no attorney-client relationship is created. Whether an ILIT fits depends on your estate and goals, and federal law may change; nothing here is a guarantee. Do not send confidential information until we have agreed to represent you.