Life Insurance Trusts (ILITs), Explained for Miami Families

An Irrevocable Life Insurance Trust (ILIT) is a Florida revocable-trust cousin that owns your life insurance policy instead of you owning it personally. For Miami families, the appeal is control and asset protection more than tax savings. Here is how it actually works, what it tends to cost, and how long the setup runs.

What an ILIT Does

When you own a life insurance policy, the death benefit is included in your taxable estate. An ILIT, created under Florida’s trust statutes (Chapter 736), owns the policy so the proceeds sit outside your estate. The trustee receives the death benefit and distributes it to your beneficiaries on the schedule you set, rather than in one lump sum to a teenager or a financially shaky relative.

The Florida Tax Reality

Here is the part many Miami residents miss: Florida has no state estate or inheritance tax. So an ILIT is not protecting you from a Florida tax bill. It matters for the federal estate tax, which only applies to estates above the federal exemption (in the millions per person). If your total estate is well under that threshold, the tax motive for an ILIT is weak. The non-tax reasons — controlling payouts, shielding proceeds from beneficiaries’ creditors or divorces, and providing liquidity — are often the stronger case for a Miami family with a large policy.

How the Setup Works, Step by Step

First, your attorney drafts the irrevocable trust and you name a trustee (often not yourself, to keep proceeds out of your estate). Second, you either transfer an existing policy into the trust or, cleaner, have the trust apply for and buy a new policy. Third, you fund premium payments through the trust, usually via annual gifts paired with “Crummey” notices that let the gifts qualify for the gift-tax annual exclusion.

One caution on transferring an existing policy: the federal three-year lookback rule means if you die within three years of the transfer, the IRS pulls the proceeds back into your estate. Buying a new policy inside the ILIT avoids that trap.

Cost and Timeline

Expect ILIT drafting to run more than a basic will and on par with a comprehensive revocable trust package, because of the irrevocable structure and the ongoing Crummey-notice administration. Setup typically takes a few weeks from intake to signing, then ongoing each year you fund premiums and send beneficiary notices. The recurring administrative work — not the one-time drafting — is what people underestimate.

Is It Right for a Miami Estate?

An ILIT tends to make sense if you have a sizable policy, a federally taxable estate, or strong reasons to control how proceeds reach beneficiaries. For a typical Miami household under the federal exemption, a properly titled revocable trust plus a named beneficiary may accomplish the goal at lower cost and effort. The word “irrevocable” is real: once it is done, you give up the ability to change your mind freely.

Talk to a Florida Attorney

ILITs interact with federal gift-tax rules, the three-year lookback, and your broader Florida estate plan in ways a template cannot capture. Before transferring any policy, consult a licensed Florida estate planning attorney who can run the numbers for your specific Miami estate.