Life insurance is often the largest single asset a family will ever receive. It usually arrives at the worst possible time. A death benefit paid directly to a grieving spouse or a young adult child can be spent or lost to creditors. It can also be swept into a taxable estate before anyone has thought carefully about it. An irrevocable life insurance trust, commonly called an ILIT, is a tool designed to prevent those outcomes.
In simple terms, an ILIT is a trust created during your lifetime that owns a life insurance policy on your life. When you die, the death benefit is paid to the trust rather than to an individual. The trustee then distributes or manages the money according to the terms you set. Done correctly, the arrangement keeps the proceeds out of your taxable estate and protects them from the beneficiaries’ creditors and poor decisions. It also allows you to control how and when the money is used long after you are gone.
The structure is powerful, but it is also permanent and easy to get wrong. This article covers five things every Georgia resident should understand before creating one.
1. The Trust Is Irrevocable, and That Word Means What It Says
The defining feature of an ILIT is that it cannot be changed or undone once it is created. You give up ownership of the policy and the right to change beneficiaries. Access to the cash value goes as well. The trustee, not you, controls the policy from that point forward.
This permanence is not a drafting choice. It is the source of the tax benefit. Under federal estate tax law, life insurance proceeds are included in your estate if you hold any incidents of ownership in the policy at death. Incidents of ownership include the right to change beneficiaries, borrow against cash value, surrender the policy, or assign it. If you retain any of these powers, the death benefit is counted as part of your estate. Placing the policy in an irrevocable trust and giving those powers to a trustee is what removes it.
Timing matters as well. Suppose you transfer an existing policy into an ILIT and die within three years of the transfer. Federal law pulls the proceeds back into your estate as though the transfer had never happened. This three year rule is why attorneys generally recommend a different approach. They suggest having the trust purchase a new policy directly rather than transferring one you already own. A policy applied for and owned by the trust from the start is not subject to the three year lookback.
Because the trust cannot be amended, the terms need to anticipate change. Beneficiaries may divorce, develop disabilities, struggle with addiction, or simply grow up differently than expected. A well drafted ILIT gives the trustee discretion to respond to circumstances and includes provisions for successor beneficiaries. It may also name a trust protector or similar party with limited power to make administrative adjustments. Georgia law also offers some flexibility after the fact, which is discussed below. Nothing substitutes for careful planning at the outset.
2. You Should Confirm That You Actually Need One
For much of the past several decades, the main reason to create an ILIT was to avoid federal estate tax. That reason still applies to some Georgia families, but far fewer than it once did.
Georgia has no estate tax and no inheritance tax. The state’s estate tax was tied to a federal credit that was eliminated years ago. Georgia has not enacted a replacement. There is also no state gift tax. For Georgia residents, the only transfer tax concern is federal.
The federal estate tax exemption for 2026 is $15 million per person, or $30 million for a married couple who use both exemptions, under legislation enacted in 2025. That amount is indexed for inflation going forward and, unlike the prior law, is not scheduled to expire. An estate valued below that amount owes no federal estate tax.
Many people underestimate the size of their estate for this purpose. The death benefit of a life insurance policy you own is included in full. A $3 million policy is $3 million of estate value even if you paid only modest premiums. Add a home in a strong Atlanta area market, retirement accounts, a business interest, and investment accounts. A family that does not think of itself as wealthy can approach the threshold. Business owners with buy sell agreements funded by large policies, and professionals with significant term coverage, are frequent examples.
Even where estate tax is not a concern, an ILIT can serve other purposes. It can hold proceeds for a young beneficiary until an age you choose rather than paying a lump sum at eighteen. A trust can provide for a beneficiary with special needs without disqualifying them from government benefits. Proceeds can be protected from a beneficiary’s creditors, from a divorcing spouse, or from a beneficiary’s own poor judgment. Children from a first marriage can be provided for even if a surviving spouse remarries. The trust can also provide liquidity to pay debts or buy out business partners without forcing a sale of other assets.
If none of these goals applies to you, a simpler approach may work better. Naming individual beneficiaries directly, or naming a revocable living trust as beneficiary, avoids the cost and complexity of an ILIT. Those options still provide some structure. An attorney can help you decide whether the irrevocable structure is worth its trade offs in your situation.
3. Funding the Trust Correctly Is an Ongoing Obligation
Creating the trust document is the beginning of the process, not the end. The trust needs money to pay premiums every year. Getting that money into the trust without creating tax problems requires a specific procedure.
You cannot simply pay the premiums yourself. Direct payment by the insured can be treated as retaining an incident of ownership and can undermine the estate tax benefit. Instead, you make a gift of cash to the trust each year, and the trustee uses that cash to pay the premium.
Gifts to a trust are ordinarily not eligible for the federal annual gift tax exclusion. The reason is that the beneficiaries have no present right to the money. That exclusion, which is $19,000 per recipient for 2026, applies only to gifts of a present interest. To solve this, most ILITs include what are called Crummey powers, named after a 1968 court case. Each time a gift is made, the beneficiaries receive written notice of a withdrawal right. They may take their share of the contribution for a limited period, typically thirty days. If they do not exercise the right, the money stays in the trust and the trustee pays the premium. The temporary withdrawal right converts the gift into a present interest and allows the annual exclusion to apply.
These notices are not a formality. Trustees should send them in writing for every contribution, keep copies, and document that the withdrawal period passed without exercise. Sloppy or missing Crummey notices are among the most common problems the Internal Revenue Service raises when examining an ILIT.
Gifts that exceed the annual exclusion, or that are made without valid Crummey powers, require a federal gift tax return on Form 709. They also use part of your lifetime exemption. That is not necessarily a problem given the size of the current exemption, but it must be tracked and reported.
The trust also needs its own taxpayer identification number and its own bank account. Premiums should be paid from that account by the trustee, not from your personal account. Mixing funds is a mistake that can be difficult to correct.
Finally, consider what happens if you stop making gifts. A trust that cannot pay premiums may see the policy lapse, which defeats the entire purpose. Some families fund the trust with a lump sum sufficient to carry the policy for years. Others use policies designed to become self sustaining. The plan should address this from the start.
4. The Choice of Trustee and the Design of Beneficiary Provisions Deserve Real Thought
An ILIT trustee owns the policy, pays the premiums, sends the Crummey notices, and files any required tax returns. At your death, the trustee collects the death benefit and manages or distributes the proceeds for the beneficiaries. This role can last for decades. Choosing the right person or institution is one of the most important decisions in the process.
You cannot serve as your own trustee. Doing so would give you control over the policy and bring the proceeds back into your estate. Your spouse can serve, but with caution. If your spouse is also a beneficiary and holds broad discretionary powers over distributions, part of the trust may be included in the spouse’s estate. Your spouse’s ability to make impartial decisions among beneficiaries may also be questioned. Many attorneys recommend an independent trustee, or a family member trustee with an independent co-trustee for discretionary decisions.
Candidates include an adult child who is not a beneficiary of the policy, a sibling, or a trusted friend. Professional options include an attorney, a certified public accountant, or the trust department of a bank. Institutional trustees charge fees but provide continuity, professional administration, and reliable compliance with the Crummey procedures. Individual trustees cost less but may lack experience, may move or become unavailable, and may die before the trust ends. Naming successor trustees is essential.
The Georgia Trust Code is found at O.C.G.A. § 53-12-1 and the sections that follow. Under it, a trustee owes duties of loyalty, impartiality, prudent administration, and accounting to the beneficiaries. A trustee who mishandles the trust can be held personally liable. Anyone you ask to serve should understand what they are taking on.
The beneficiary provisions require equal attention. Decide whether the trustee should distribute the proceeds outright at your death or hold them until beneficiaries reach certain ages. Another option is to keep them in trust for life with distributions for health, education, support, and similar needs. Consider what should happen if a beneficiary dies before you, becomes disabled, divorces, or faces bankruptcy. Think about whether grandchildren should be included and on what terms. A trust that answers these questions in advance spares the trustee from guessing and spares the family from conflict.
5. Georgia Law Shapes How the Trust Works
An ILIT is governed by federal tax law for its tax consequences and by state trust law for everything else. Several features of Georgia law are relevant.
Formation. Under the Georgia Trust Code, an express trust must be in writing and signed by the settlor. A trust document should be executed with the same care as a will. Most attorneys have it witnessed and notarized even where the statute does not strictly require it. The trust must have an identified trustee, identified beneficiaries, and property. For an ILIT, the property is typically a nominal initial contribution followed by the policy.
Spendthrift protection. Georgia law recognizes spendthrift provisions, which prevent a beneficiary from assigning their interest in the trust and prevent most creditors from reaching it. Under O.C.G.A. § 53-12-80, a spendthrift clause is enforceable against creditors of a beneficiary, with limited exceptions such as certain claims for child support and alimony. This protection is one of the main non tax reasons to use an ILIT rather than naming individuals directly.
Modification and decanting. Although the trust is irrevocable, Georgia law provides some avenues for change. Under O.C.G.A. § 53-12-61, a court may modify or terminate an irrevocable trust in certain circumstances. Modifications are also possible with the consent of the settlor and beneficiaries. Georgia also has a decanting statute at O.C.G.A. § 53-12-62. It allows a trustee with discretionary distribution authority to transfer trust assets into a new trust with updated terms, subject to statutory limits. These tools are not a substitute for good drafting, and any change to an ILIT must be evaluated for tax consequences. They do mean that a mistake or a change in circumstances is not always permanent.
Duration. Georgia has extended its rule against perpetuities to 360 years for trusts created after the 2018 amendments, under O.C.G.A. § 44-6-201. A Georgia ILIT can therefore be designed to hold assets for multiple generations. That is useful for families who want a policy to fund a long term legacy rather than a single distribution.
Creditor protection for the insured. Georgia law provides certain protections for life insurance proceeds payable to a named beneficiary other than the insured’s estate. Those protections apply independently of a trust. An ILIT adds protection on the beneficiary side through the spendthrift clause and through the trustee’s control over distributions. The combination is stronger than either alone.
Income tax. An ILIT that holds only a term policy generally has no income and files no income tax return. A trust holding a policy with cash value, or holding proceeds after the insured’s death, may have taxable income. Georgia taxes trust income at the state level. The trustee should plan for filing obligations once the trust has income to report.
How the Process Typically Works
Creating an ILIT in Georgia usually follows a predictable sequence. The attorney drafts the trust document based on your goals and your family situation. You sign the trust and make a small initial contribution to bring it into existence. The trustee obtains a taxpayer identification number and opens a bank account. Next, the trustee applies for the life insurance policy in the name of the trust, with the trust as owner and beneficiary. Once the policy is issued, you make annual gifts to the trust. The trustee sends Crummey notices and pays the premiums from the trust account.
Each year the cycle repeats. When you die, the trustee files the claim, collects the proceeds, and administers them according to the trust terms.
Coordination among your attorney, your insurance agent, and your accountant is important. The agent needs to structure the application correctly. Your accountant needs to track gifts and file any required returns. Meanwhile, the attorney needs to make sure the trust terms, the policy ownership, and the beneficiary designations all line up.
Common Mistakes to Avoid
Several errors appear repeatedly in Georgia ILITs.
Transferring an existing policy without understanding the three year rule, and then dying within that window.
Paying premiums directly from personal funds rather than through gifts to the trust.
Skipping or improperly documenting Crummey notices.
Naming the insured, or a beneficiary with broad powers, as trustee.
Failing to name successor trustees, leaving the trust without a fiduciary when the original trustee dies or resigns.
Allowing the policy to lapse because no one planned for the ongoing funding obligation.
Drafting the trust so rigidly that it cannot respond to changed circumstances.
Each of these can undermine the tax benefit, the creditor protection, or the basic purpose of the trust. All of them are avoidable with careful planning and consistent administration.
Conclusion
An irrevocable life insurance trust is a specialized tool. Some Georgia families have estates approaching the federal exemption, beneficiaries who need protection, blended family concerns, or business succession needs. For them, it can accomplish things no other arrangement can. Families without those concerns may find that the permanence and administrative burden outweigh the benefits.
Before creating one, understand that the trust cannot be undone and confirm that it serves a real purpose in your situation. Commit to funding it properly every year, choose a trustee who can handle the role, and take advantage of the flexibility Georgia law provides. An ILIT built on those foundations will do what it was designed to do when your family needs it most.
This article provides general information about Georgia and federal law and is not legal or tax advice for any specific situation. Trust and tax rules are detailed and change over time. Consult a Georgia estate planning attorney and a tax advisor before creating a life insurance trust.