What to Know About Irrevocable Life Insurance Trusts (ILIT) in Ohio

When planning your estate, you want to make sure your loved ones are protected and that your assets go where you intend. One powerful tool to help with this is an irrevocable life insurance trust, often called an ILIT. Gudorf Law Group, LLC, helps Ohio families understand how ILITs work and whether one could benefit their estate plan.

What Is an Irrevocable Life Insurance Trust?

An irrevocable life insurance trust is a type of trust that holds a life insurance policy outside of your estate. When done properly, this keeps the policy’s value and death benefits from being counted as part of your taxable estate. That means the money from the insurance policy doesn’t face estate taxes when you pass away.

The trust owns the policy, not you. This is important because it removes control from your hands. That might sound scary, but it comes with benefits. You give up the ability to change the trust later, but in return, the value of the policy is kept safe from taxes and sometimes creditors. Gudorf Law Group helps clients understand the trade-offs and how this type of trust fits into a broader estate plan.

How Does an ILIT in Ohio Work?

Here’s how an ILIT works in Ohio. Once you set up the trust, the trustee—not you—owns the life insurance policy. You make gifts to the trust, and the trustee uses that money to pay the insurance premiums. When you pass away, the death benefit goes to the trust. The trustee then follows your instructions in the trust document to distribute the money to your chosen beneficiaries.

Because you do not control the trust, the money is not part of your estate. That helps avoid federal estate taxes and can make the process faster and smoother for your family. The ILIT can also be used to provide cash to your estate if needed. For example, the trust can loan money to your estate to help pay taxes or other costs, which means your family does not have to sell assets quickly to cover those bills.

Who Should Consider an Irrevocable Life Insurance Trust?

An ILIT in Ohio is often a smart option for people with large estates. If your assets may be subject to federal estate taxes, the ILIT helps protect life insurance proceeds from being taxed. That way, your family can use the money to cover those taxes or other expenses without having to sell off valuable or sentimental assets.

Gudorf Law Group works with many clients who want to avoid burdening their loved ones with financial problems after they are gone. By setting up an ILIT, they gain peace of mind knowing there is a reliable way to provide liquidity to their estate. It can also be helpful for married couples. Even with credit shelter provisions in a living trust, there may still be tax exposure. An ILIT can be a smart addition to that strategy. If you have a blended family, specific distribution goals, or want to keep life insurance proceeds out of reach of certain creditors or claims, an ILIT can help with that too.

How Are Premiums Paid Without Triggering Gift Taxes?

This is where planning matters. You give money to the ILIT each year, and the trustee uses it to pay the life insurance premiums. To avoid gift tax issues, these gifts often need to fall under the annual exclusion amount for gift taxes. One common strategy involves something called a Crummey notice. This gives your beneficiaries a short-term right to withdraw the gift, even if they never actually do it. That helps your gifts qualify for the annual exclusion, avoiding gift tax problems.

We make sure that all notices and steps are properly handled to stay within IRS rules. This area of law can get technical fast, but our team walks clients through each step so nothing is missed.

Why Is It Called ‘Irrevocable’ and What Does That Mean?

When you create an ILIT, you give up the right to change it later. That is what makes it irrevocable. You cannot take back the life insurance policy or change the beneficiaries after the trust is in place. This loss of control is what makes the trust effective at avoiding estate taxes, but it also means you must be certain about your goals before creating one.

Working with an experienced law firm like Gudorf Law Group helps ensure you are making a well-informed decision. We talk through your goals, finances, and family dynamics so that you know whether this trust is the right tool for your situation.

Does an ILIT Pay Income Taxes?

In most cases, an ILIT does not pay income taxes. That is because the only money coming into the trust is from your gifts, which are not income. The life insurance proceeds are also generally tax-free. However, depending on how the trust is set up and how it handles the proceeds after your death, there could be some tax implications for your beneficiaries. Gudorf Law Group helps you build the trust in a way that minimizes any tax surprises later.

What Happens After the Death of the Insured?

When you pass away, the insurance company pays the death benefit to the trust. The trustee follows the directions in the trust to use or distribute the money. Sometimes, this means loaning money to the estate to cover taxes. Other times, it means holding the funds in trust for young children or other beneficiaries who are not ready to manage large sums of money. Because the money stays outside of the probate process, it is usually available more quickly than other estate assets.

This flexibility and speed are part of why ILITs are so useful. They allow your family to meet financial needs without delay and without having to sell property or borrow money elsewhere.

Ready to Protect Your Legacy with an ILIT in Ohio? Contact Gudorf Law Group Today.

An irrevocable life insurance trust is not a one-size-fits-all solution, but for many families in Ohio, it offers a smart and tax-efficient way to preserve wealth and simplify estate settlement. It’s a strategic move that can give your loved ones faster access to funds while avoiding unnecessary taxes and court delays.

At Gudorf Law Group, our clients come first. We take the time to understand your full financial picture so we can guide you through every detail of setting up an ILIT the right way. Whether you’re planning for future estate taxes, protecting family assets, or simply looking to leave a legacy with less burden on your heirs, our experienced estate planning attorneys can help. Contact Gudorf Law Group today to schedule your consultation and explore whether an ILIT is the right fit for your estate plan.