Client & Payment PortalLife Insurance – Is it Taxable?
In this episode of TFE Talks, David Thompson and estate planning specialist Jordan Goewey break down how irrevocable life insurance trusts (ILITs) work and why they matter for high-net-worth individuals. They explain when life insurance can become estate taxable, the concept of “incidents of ownership,” and how moving policies into an ILIT can keep proceeds outside the taxable estate while still providing liquidity for estate taxes, business needs, or family support. The discussion covers basic ILIT structure (trustees, beneficiaries, and policy ownership), the use of Crummey powers and annual gift tax exclusions to fund premiums efficiently, key administration requirements like Crummey notices, the impact of generation-skipping transfer tax, and strategies for transferring existing policies into an ILIT, including sales to avoid the three-year look-back. Listeners come away with a practical understanding of when an ILIT may be appropriate and how it fits into broader estate and tax planning.
Notes:
Topics in this conversation include:
- Are Life Insurance Proceeds Taxable? Income Tax vs Estate Tax (1:36)
- Incidents of Ownership and Why They Pull Life Insurance Into Your Estate (3:03)
- How an ILIT Owns a Policy and Keeps Proceeds Off Your Balance Sheet (4:00)
- Using ILITs to Create Liquidity and a Classic $20M Estate / $2M Policy Example (6:24)
- Choosing a Trustee and Why Banks or Trust Companies Can Be Helpful (8:13)
- Crummey Trusts, Annual Exclusion Gifts, and Sending Crummey Notices (11:19)
- Generation Skipping Transfer Tax and Tracking GST Exemption with ILITs (16:59)
- Moving an Existing Policy Into an ILIT and Avoiding the Three-Year Look Back (20:53)
- When ILITs Make Sense Today and Why Early Planning Adds Flexibility (24:18)
TFE Talks: Navigating Wealth, Business, and Legacy is the official podcast from Thomas, Fisher & Edwards, a premier estate planning and business advising law firm in Greenville, South Carolina. Each episode, our attorneys break down complex legal topics—covering estate planning, business strategy, and legacy building—into clear, actionable insights. Whether you’re refining a plan with our team or preparing for the future, this podcast serves as your go-to resource for thoughtful, strategic planning. Tune in for guidance that helps you protect what matters most. Learn more at www.tfelawfirm.com.
The information provided in this podcast is for general informational purposes only and should not be considered legal advice. Listening to this podcast does not create an attorney-client relationship with Thomas, Fisher & Edwards or any of its attorneys. Laws and regulations vary, and legal matters are highly fact-specific. For personalized legal guidance, please consult with a qualified attorney.