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Irrevocable Life Insurance Trusts in Georgia: Who Owns the Policy and Why It Matters

An irrevocable life insurance trust (ILIT) owns your life insurance policy, so the payout is not counted in your taxable estate. Georgia has no estate tax, and the 2026 federal exemption is $15 million per person, so for most Atlanta families an ILIT is about control over the money, not tax savings.

By Melissa Breyer, Esq. 15 min read

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Life insurance is only tax-free in one sense. Your family will not owe income tax on the payout. But if you own the policy when you die, the full death benefit is added to your estate for federal estate tax. A single Buckhead homeowner with $13 million in other assets and a $3 million policy can be pushed past the federal line without anyone noticing.

An ILIT fixes that by changing who owns the policy. The trust buys the policy, pays the premiums, and collects the money. You do not own it, so it is not counted in your estate. The catch is in the name. Irrevocable means you give up the right to change your mind on your own.

You may be reading this because a financial advisor raised it, or because you own a large policy and want to know if it is a problem. An ILIT comes down to who does what, the rules that make it work, what it costs you in control, and whether your family needs one at all. Many do not.

Who Owns the Policy Is the Whole Question

Federal tax law does not care whose name is on the beneficiary line. It cares who controls the policy. Under IRC § 2042, the death benefit is pulled into your taxable estate if you held any “incidents of ownership” when you died.

Treasury rules give examples of what counts. Each of these is an incident of ownership:

  • Changing the beneficiary on the policy
  • Canceling or cashing in the policy
  • Assigning or pledging the policy to someone else
  • Borrowing against the cash value

If you hold even one of these powers at death, the whole payout counts. An ILIT works by making sure you hold none of them. The trust owns the policy outright, and the trustee holds every one of those powers instead of you.

This is also why a regular living trust does not solve the problem. A revocable living trust in Georgia keeps assets out of probate, but you can change or cancel it at any time. That power to revoke means everything inside it still counts in your estate.

The Three People in an ILIT

How an ILIT works: you sign the trust, and the trustee buys a life insurance policy with the trust as owner and beneficiary. Each year you give the trust money, and the trustee pays the premium. When you die, the insurer pays the trust, and the trustee pays your family under the trust’s terms.

Every ILIT has three roles. Knowing who fills each one explains most of the rules.

The grantor is you. You sign the trust and give it the money to pay the premiums. Once the trust is signed, you step back.

The trustee runs the trust. The trustee applies for or holds the policy, pays the premiums, sends the required notices, and collects the death benefit. It can be a trusted adult child, a sibling, a friend, or a bank or trust company.

The beneficiaries are the people who receive the money in the end. Usually that is a spouse, children, or grandchildren. The trust says how and when they get it.

You should not be the trustee of your own ILIT. This is a federal tax rule, not a Georgia statute. A trustee can change beneficiaries, borrow against the policy, and cancel it. If you hold those powers as trustee, you hold incidents of ownership, and the payout goes right back into your estate. The whole plan fails.

Choosing a trustee who will actually do the paperwork every year matters more than it sounds. Our guide to how a trust works after someone dies in Georgia shows the kind of work a trustee takes on.

A New Policy or One You Already Own

There are two ways to get a policy into an ILIT. They are treated very differently.

The cleaner path is a brand-new policy. The trust is signed first. Then the trustee applies for the policy with the trust as owner and beneficiary. You never owned it, so there is no waiting period at all.

Moving a policy you already own starts a 3-year clock. Under IRC § 2035(a), if you give an existing policy to the trust and die within three years of the transfer, the death benefit is counted in your estate anyway. Live past three years and it stays out.

Sometimes moving an existing policy is still the right call. You may no longer qualify for new coverage because of your health, or the old policy may carry a better price. In that case the plan simply has a three-year gap to account for.

How the policy moves matters too. A gift of your own policy to the trust is normally safe for income tax. Trouble can start when a trust buys an existing policy from someone other than the insured person. Under IRC § 101(a)(2), that kind of sale can make part of the death benefit taxable income. This is one reason the steps and paperwork need a careful review.

How the Premiums Get Paid Each Year

The trust usually has no money of its own. So each year you give the trust enough cash to pay the premium, and the trustee pays the insurance company. You never pay the insurer directly.

Those yearly gifts raise a tax question. For 2026, you can give up to $19,000 per person each year without using any of your lifetime exemption. But that annual exclusion only covers gifts the person can use now. Under IRC § 2503(b), a gift of a “future interest” does not qualify. Money that goes into a trust for someone to receive later is normally a future interest.

A Crummey notice solves this. Each time you add money, the trustee sends each beneficiary a written notice. It says they have the right to take out their share of the new gift during a set window written into the trust. That real right to withdraw turns the gift into a present interest, so it qualifies for the $19,000 exclusion.

In practice, beneficiaries usually let the window close without taking anything, because they know the money is paying for coverage that will pay them far more later. But the right has to be real, and the notice has to go out every time. If the notices are skipped, those gifts no longer fit under the yearly $19,000 limit. You then need to file a federal gift tax return (Form 709).

Even gifts that miss the yearly limit are rarely taxed right away. For most families, they simply count against the same $15 million lifetime amount that also shelters your estate at death.

The Numbers That Decide Whether an ILIT Helps
$15 Million
Federal estate tax exemption per person in 2026
If your estate plus your insurance stays under this, an ILIT will not save your family estate tax.
3 Years
How long a policy you move into an ILIT can still count against you
Buying a new policy inside the trust avoids this wait entirely.
$19,000
Yearly gift per beneficiary in 2026 that uses none of your lifetime amount
Premium gifts under this amount, sent with a proper notice, leave your $15 million untouched.

What Happens When the Insured Person Dies

When you die, the insurance company pays the death benefit to the trust, because the trust is the named beneficiary. The payout does not pass through probate in any Georgia county, since it never belonged to your estate.

Under IRC § 101(a)(1), the money is generally received free of income tax. The trustee then follows the trust’s instructions. It might pay out in one lump sum, hold money for young grandchildren, or keep it in trust for a surviving spouse for life.

A well-drafted ILIT can also help your estate with cash. If the trust allows it, the trustee may buy assets from your estate or lend it money. That gives your executor cash for bills and taxes without selling a family business or a rental property in a hurry. Families with a closely held company often pair this with key person life insurance for a Georgia business.

Reasons to Use an ILIT That Have Nothing to Do With Tax

Most metro Atlanta families will never owe federal estate tax. An ILIT can still make sense for them, for reasons a beneficiary form cannot handle.

You decide how the money is paid out. A beneficiary form hands a young adult a large check the day the claim is paid. A trust can pay for school, a first home, or monthly support, and hold the rest until a later age.

It can keep money away from a beneficiary’s creditors. Under O.C.G.A. § 53-12-80, a Georgia trust can include a spendthrift clause. That clause keeps creditors from reaching the money while it is still in the trust, with some exceptions, such as unpaid child support and alimony.

It can protect children from an earlier marriage. In a blended family, naming a new spouse as beneficiary may mean the money never reaches your children. A trust can provide for both, in the order you choose.

It can help keep the money out of a child’s divorce. In a Georgia divorce, money one spouse inherits is generally that spouse’s own separate property. That protection can be lost if the money is later put in both spouses’ names. A trust that holds the money and pays it out for set purposes makes that less likely.

It can even out what each child receives. Say one child will take over your business, and your other children will not. The insurance payout can give the others a fair share in cash, so no one has to sell the business to split things evenly.

It can protect a beneficiary with special needs. A lump sum can knock a disabled child off public benefits. A trust drafted for that purpose can hold the money for them instead.

For a wider look at what trusts can do in Georgia, see our guide to the benefits of a trust in Georgia.

Can an ILIT Be Changed Later?

Irrevocable does not mean frozen forever, but it does mean you cannot change it alone. Georgia law gives two main paths.

The first path is a court order. Under O.C.G.A. § 53-12-61, while you are living, a Georgia court must approve a change or an end to an irrevocable trust if you and all qualified beneficiaries agree and the trustee has been given notice. After your death, all qualified beneficiaries must agree, and the court must also find that the change does not conflict with any material purpose of the trust. A court can also approve some changes without everyone’s consent, for reasons such as circumstances you did not foresee or your tax goals.

The second path is decanting. Under O.C.G.A. § 53-12-62, a trustee who has the choice to pay out the trust’s income or principal can move trust property into a new trust with updated terms. That trustee cannot be the person who put money into the trust. The trustee must give written notice at least 30 days before the move. The new trust cannot add new beneficiaries. The statute also blocks a move that would cost the trust a tax benefit its gifts qualified for, such as the annual exclusion.

The trust can also build in flexibility from the start. The document may name a trust director or give someone the power to make limited changes. This is worth planning for up front, because both court and decanting paths take time and legal work.

Do You Need an Irrevocable Life Insurance Trust in Georgia?

Georgia has no state estate tax. It has not taxed estates since 2005. So in Georgia, the tax question is purely federal.

For 2026, the federal estate tax exemption is $15 million per person. A married couple can shelter up to $30 million, if the first spouse’s estate files the return that passes the unused amount to the survivor. Only the value over that line is taxed.

You may have read that the exemption was about to be cut in half. Many older articles still say so. That cut did not happen. Federal law now sets the exemption at $15 million for 2026 and raises it with inflation in later years. Congress can still change the law, so a family close to the line may still want an ILIT in place.

Add up everything you own, then add the full death benefit of every policy you own. If the total is well under $15 million, or under $30 million for a couple who plans for it, an ILIT will not save your family estate tax today. It may still be worth it for control over how the money is paid out, creditor protection, or a blended family, but not for tax.

An ILIT deserves a closer look if:

  • Your total, with insurance counted, is near or above the exemption.
  • You own a business or real estate that your heirs would need cash to keep.
  • You want strict control over how a large payout reaches your children.

Moved here from another state? Some Atlanta retirees relocated from states that still tax estates at the state level, such as New York, Massachusetts, or Illinois. An ILIT set up there may have been built mostly for that state tax. After a move to Georgia, it is worth reviewing whether it still fits, and whether the premiums are still worth paying. If you still own a home in New York or Massachusetts, that state can still tax it.

An ILIT is one of several kinds of irrevocable trusts Melissa sets up in Georgia. You can see how fees work on our irrevocable trust cost page, and see where it fits in a full plan in our Georgia estate planning guide.

Setting Up an ILIT, Step by Step

Decide Who Fills Each Role

Pick a trustee who is not you and who will handle yearly paperwork. Decide who the beneficiaries are and how they should receive the money.

Sign the Trust First

Melissa drafts the trust and you sign it before any policy is bought or moved. The trustee then opens a bank account in the trust's name.

Put the Policy in the Trust

For a new policy, the trustee applies with the trust as owner and beneficiary. For a policy you already own, you sign a transfer form, and the death benefit still counts in your estate if you die within three years of that transfer.

Fund Each Premium

Each year you give the trust enough cash for the premium. The trustee sends a Crummey notice to every beneficiary, waits out the window, then pays the insurer.

Keep Records Every Year

The trustee keeps copies of every gift, notice, and premium payment. Those records are what prove the trust worked if the IRS ever asks.

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Melissa Breyer

Melissa Breyer

Georgia Estate Planning Attorney

Licensed by the State Bar of Georgia, Bar No. 897967

Melissa Breyer is a Georgia-licensed estate planning attorney focused exclusively on trust-based planning for individuals and families. She personally meets with every client and designs every plan from scratch. No templates. No associates handling your case. Every plan is built for your specific family, your specific assets, and your specific wishes.

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Frequently Asked Questions

An irrevocable life insurance trust (ILIT) is a trust that owns and is the beneficiary of a life insurance policy, so the payout is not counted in the insured person’s taxable estate. Georgia has no estate tax of its own, so only federal tax rules matter here. The trustee pays the premiums with money the grantor, the person who set up the trust, gives each year. When the insured person dies, the trustee collects the money and pays it out under the trust’s terms.

The trustee of an ILIT should be someone other than the insured person, because a trustee can change beneficiaries, borrow against the policy, and cancel it. Under IRC § 2042, holding those powers counts as an “incident of ownership,” which pulls the death benefit back into the insured person’s estate. This is a federal tax rule, not a Georgia statute. Common choices are an adult child, a sibling, a trusted friend, or a trust company. Pick someone who will send the yearly notices and keep records.

An incident of ownership is any power over a life insurance policy that federal tax law treats as owning it. The rule is in IRC § 2042. Treasury rules give examples: the power to change the beneficiary, to cancel the policy or cash it in, to sign it over or pledge it, or to borrow against it. If the insured person holds even one of these at death, the full payout counts in their taxable estate.

A life insurance policy you already own and move into an ILIT is still counted in your estate if you die within three years of the transfer. That rule comes from IRC § 2035(a). If you die within those three years, the death benefit is taxed as if you still owned it. A brand-new policy bought by the trust has no waiting period, which is why it is the cleaner path when your health allows it.

A Crummey notice is a letter the ILIT trustee sends each beneficiary every time the grantor adds money to the trust. It gives the beneficiary a real, short-term right to take out their share of that gift. That right turns the gift into a present interest under IRC § 2503(b). So the gift counts toward the yearly gift tax exclusion, which is $19,000 per beneficiary for 2026.

An ILIT will not save estate tax for a Georgia family whose total estate is under the federal exemption. Count the full death benefit of every policy you own in that total. The exemption is $15 million per person for 2026, and Georgia has no state estate tax. A married couple can shelter up to $30 million if the first spouse’s estate files the return that passes the unused amount to the survivor. An ILIT can still help for other reasons, such as controlling how a large payout reaches young heirs.

Life insurance owned by an ILIT does not go through probate in Georgia. The insurance company pays the death benefit straight to the trust, because the trust is the named beneficiary. The money never becomes part of the probate estate. The trustee then pays it out under the trust’s instructions, with no filing in the county probate court.

An ILIT can be changed, but the grantor cannot change it alone. Georgia law gives two main paths. Under O.C.G.A. § 53-12-61, a court must approve a change while the grantor is living if the grantor and all qualified beneficiaries agree and the trustee has been given notice. After the grantor dies, all qualified beneficiaries must agree, and the court must also find the change does not conflict with any material purpose of the trust. A court can also approve some changes without everyone’s consent, such as for circumstances the grantor did not foresee or for tax goals. Under O.C.G.A. § 53-12-62, a trustee who can choose to pay out income or principal, and who did not put money into the trust, may move the property into a new trust. The trustee must give written notice at least 30 days before the move and cannot add new beneficiaries.

The main downside of an ILIT is lost control. The grantor cannot change beneficiaries, borrow against the policy, or cancel the trust on their own. It also takes yearly work: gifts to the trust, Crummey notices, and records. A policy that is moved in, rather than bought new, still counts in the estate if the grantor dies within three years. For families well under the federal estate tax exemption, which is $15 million per person for 2026, these costs may outweigh the benefit.

If the premiums on an ILIT policy stop getting paid, the policy can end under the insurance company’s terms. Then the trust may have nothing to collect. This can happen if the yearly gifts stop. It can also happen if a flexible-premium policy costs more than first planned. A careful trustee checks the policy every year and asks the insurer for an updated estimate. If the numbers slip, there may be choices, such as paying more or lowering the payout. Each choice depends on the policy itself.

An ILIT can own term life, whole life, universal life, or a survivorship policy. A survivorship policy, also called second-to-die, pays when the second spouse dies. These are common for married couples who plan together. Term policies can also be held, but they may run out before they are needed.

When the insured person dies, the insurer pays the death benefit to the ILIT. Under IRC § 101(a), that money is generally free of income tax. The trustee then follows the trust’s terms. The trustee may pay the money out or hold it for a spouse or grandchildren. If the trust allows, the trustee may also buy assets from the estate or lend it cash for bills and taxes.

The cost of an ILIT in Georgia has two parts: the legal fee to draft the trust and the ongoing insurance premiums the trust pays each year. Atlanta Estate Planning tells you the legal fee during a free 15-minute phone call. Premiums depend on the policy, your age, and your health, and they are set by the insurance company.

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