What is a Life Insurance Trust (ILIT) and why use one in Loudoun County?

An ILIT is an irrevocable trust that owns your life insurance policy so the death benefit is excluded from your taxable estate. It helps Loudoun County families pass proceeds to beneficiaries tax-efficiently while controlling distributions.

How does an ILIT keep life insurance outside my taxable estate?

Because the trust—not you—owns the policy and is the beneficiary, the proceeds are generally not included in your estate for estate tax purposes, assuming proper setup and timing requirements are met.

Can I transfer an existing policy into an ILIT?

Yes, but if you die within three years of transferring an existing policy, the proceeds may be pulled back into your estate under federal rules. Many clients choose to have the ILIT apply for a new policy to avoid the three-year lookback.

How are premium payments handled without causing gift tax issues?

You typically make annual gifts to the ILIT, and the trustee sends Crummey notices to beneficiaries so those gifts qualify for the annual exclusion. We structure contributions and notices to stay compliant.

Who should serve as trustee of my ILIT?

Choose a financially responsible individual or professional fiduciary who can administer the trust, send Crummey notices, pay premiums, and follow distribution standards. Avoid naming yourself as trustee.

Is an ILIT really irrevocable—can I change it later?

ILITs are generally irrevocable to achieve estate tax benefits. We build in practical flexibility—such as replacing the trustee, decanting powers (where permitted), or limited powers of appointment—without undermining tax objectives.

Can an ILIT protect beneficiaries from creditors or poor money habits?

Yes. The trust can delay or stagger distributions, use HEMS standards (health, education, maintenance, and support), and include spendthrift provisions to help protect assets from creditors and imprudent spending.

How can an ILIT provide estate liquidity for taxes or debts?

The trustee can loan funds to, or purchase assets from, your estate to provide liquidity. This keeps family assets intact while ensuring bills and taxes are paid without a forced sale.

What does it cost and how long does ILIT setup take in Loudoun County?

Costs vary by complexity and trustee choice. Typical timelines include drafting, underwriting (for new policies), and funding. We provide clear, upfront pricing and coordinate with your insurer and CPA to move efficiently.

How do I start an ILIT with Shin Law Office?

Schedule a consultation. We assess goals, draft the ILIT, align premium gifts and Crummey notices, and coordinate policy ownership and beneficiary designations. Call 571-445-6565 or use the contact form at https://shinlawoffice.com/meet-our-team/contact/.

Estate Planning & Probate Estate Tax Planning and Asset Protection Irrevocable Life Insurance Trusts (ILITs)Loudoun County

How a Life Insurance Trust (ILIT) Protects Loudoun County Families

by Adam Engel

By Adam L. Engel, Esq. | Estate & Probate Attorney | Shin Law Office

Why Families Ask Me About Life Insurance Trusts

When I meet with families from Leesburg, Ashburn, Sterling, and Purcellville, one of the most common questions I hear is: “How can I make sure my life insurance benefits go directly to my children without creating a tax burden?”

Life insurance is often the single largest asset in a family’s estate.

Without proper planning, those proceeds may be counted as part of your taxable estate, which can reduce what your loved ones actually receive.

A Life Insurance Trust (ILIT) solves that problem.

What Is a Life Insurance Trust?

A Life Insurance Trust, or ILIT, is a special kind of trust designed to own your life insurance policy outside of your estate.

That means the death benefit is not included in your taxable estate when you pass away.

Instead, the proceeds are distributed directly to your beneficiaries according to the rules you set.

Why Loudoun County Families Benefit from an ILIT

Loudoun County families often have high-value estates, rising home values in Leesburg and Ashburn, small businesses in Sterling, or family farms in Lovettsville. Those assets, combined with life insurance proceeds, can easily push an estate above federal estate tax thresholds.

An ILIT provides protection by keeping those insurance proceeds out of the taxable estate.

With an ILIT, you can:

Protect against estate taxes – By excluding life insurance from your taxable estate.
Control distributions – Decide how and when your children receive funds (for education, healthcare, or milestones).
Protect beneficiaries – Prevent proceeds from being wasted, seized by creditors, or accessed too soon by young heirs.
Support long-term goals – Ensure funds are available to pay estate costs, support a spouse, or provide for dependents.

How an ILIT Works in Practice

Here’s an example: A couple in Leesburg has a $1 million life insurance policy.

Without an ILIT, that $1 million is added to their estate, potentially pushing them into estate tax territory.

With an ILIT, the policy is owned by the trust, not by them personally.

When they pass away, the trust receives the $1 million and distributes it to their children according to their instructions, without estate taxes reducing the benefit.

Important Considerations

Irrevocable Structure: Once you set up an ILIT and transfer the policy, you cannot revoke it. This is what makes it effective for tax purposes.
Trustee Selection: You’ll need to name a trustee to manage the trust responsibly. This could be a family member, trusted friend, or professional fiduciary.
Gift Tax Rules: Premium payments you make to the trust are considered gifts. I work with clients to structure contributions properly, often using “Crummey notices” to stay within annual gift tax exclusions.

Why Local Planning Matters

In Loudoun County, families face unique planning challenges.

High property values in Ashburn, long-held family land in Middleburg, and business ownership in Sterling all increase the need for careful estate tax planning.

A Life Insurance Trust is one of the most powerful tools we use to ensure wealth passes efficiently to the next generation.

Final Thoughts

A Life Insurance Trust is not just about saving taxes—it’s about creating financial security for your family when they need it most.

It ensures your life insurance benefits pass directly, efficiently, and securely to the people you love.

If you live in Leesburg, Ashburn, Purcellville, or anywhere in Loudoun County, and you want to make sure your life insurance truly protects your family, let’s talk about whether an ILIT is right for you.