Why ILITs Are Underutilized, and How Access Is Expanding

Life insurance has long played a central role in estate planning, even for individuals who have not yet executed a will or established a trust. It provides immediate liquidity to beneficiaries, helping cover everyday financial obligations such as mortgages, car payments, health care, education, even groceries, in the event of an untimely death. It can also fund business succession arrangements and support families through complex financial transitions.

Yet one of the most powerful tools associated with life insurance planning, the Irrevocable Life Insurance Trust (ILIT), remains widely underutilized. This is not because ILITs lack value. In fact, quite the opposite is true. The problem is structural.

A Powerful Tool That Few Brokers Use

An ILIT can remove life insurance proceeds from a client’s federal and state taxable estates, helping preserve wealth for future generations. For many families, this can translate into meaningful estate tax savings.

While much attention is given to the federal estate tax, state-level estate taxes often create a more immediate risk. In 2026, the federal estate tax exemption is approximately $15 million per individual, meaning relatively few estates are subject to federal estate tax. By contrast, several states impose estate taxes with significantly lower thresholds. Washington State’s estate tax exemption is approximately $3.076 million per individual in 2026, with tax rates reaching as high as 35% on amounts above that threshold for deaths before July 1, 2026 and 20% for estates that exceed $3,000,000 for deaths after June 30, 2026.

New York presents a different but equally challenging dynamic. Its 2026 estate tax exemption is approximately $7.35 million per individual, but it includes a “cliff” structure under which exceeding the exemption can subject the entire estate to taxation.

Currently 12 states and the District of Columbia impose estate taxes on their residents. The result of these levies is a planning landscape where many modestly wealthy people who are well below federal thresholds may still face significant state-level estate tax exposure. Despite this, many insurance brokers rarely recommend ILITs. In some cases, they are unfamiliar with how ILITs work. In others, they understand the concept but avoid introducing it because they cannot provide the ILIT themselves and seeking legal assistance to get an ILIT is costly and time consuming – adding complexity to the underwriting process.

This gap between value and usage is not a knowledge problem alone. It’s a workflow problem.

The Traditional Process Creates Friction

Historically, establishing an ILIT requires coordination with an estate planning attorney. The process often includes:

  • Identifying a qualified law firm
  • Aligning schedules between client, broker, and attorney
  • Drafting and reviewing trust documents
  • Managing ongoing administrative requirements

Each of these steps introduces time delays, cost uncertainty, and coordination challenges.

For brokers, this creates a practical dilemma. Recommending an ILIT means introducing a process that is outside their control and potentially slows down or complicates the sale. In a competitive environment, that friction can be enough to discourage even well-informed professionals from raising the topic.

Research from the Life Insurance Marketing and Research Association (LIMRA) consistently shows that complexity is one of the primary reasons consumers delay or abandon life insurance decisions. When additional layers such as legal coordination are introduced, the likelihood of follow-through declines even further.

The Awareness Gap

There is another, equally important issue. Many insurance brokers have never been formally trained on ILITs. While advanced planning concepts are common among wealth advisors and estate attorneys, they are less consistently covered in insurance-focused education. As a result, brokers may not fully understand when an ILIT is appropriate, how to explain its benefits, or how to position it within a broader planning conversation.

At the same time, the general public remains largely unaware that ILITs exist, let alone how they can enhance the value of life insurance or provide meaningful control over how and when proceeds are distributed. As a result, clients rarely inquire about ILITs. Even financially sophisticated individuals often assume that life insurance proceeds must be paid directly to beneficiaries shortly after death and will be included in their taxable estate. In reality, properly structured planning can significantly alter both the tax treatment and the timing and manner of distributions.

This dual awareness gap creates a compounding effect. Brokers are less likely to raise ILITs proactively, and clients are not in a position to request them. As a result, opportunities for more efficient and effective wealth transfer planning are frequently missed.

Why This Matters Now

The current planning environment makes this issue more relevant than ever. Estate tax policy continues to evolve, and even modest changes at the federal level can significantly expand the number of taxable estates. At the same time, state-level estate taxes already apply to a much broader population due to their lower exemption thresholds.

Meanwhile, a historic intergenerational wealth transfer is underway. Cerulli Associates estimates that tens of trillions of dollars will move from one generation to the next over the coming decades.

In this context, tools like ILITs are not niche strategies. They are increasingly central to thoughtful estate planning. Yet the same structural barriers remain in place.

Bridging the Gap Between Strategy and Execution

For ILITs to become more widely adopted, the process must become simpler and more accessible.

Brokers need a way to:

  • Confidently introduce ILITs in client conversations
  • Avoid the delays and uncertainty of traditional legal coordination
  • Maintain momentum in the sales process
  • Deliver a high-quality, compliant outcome for clients

When these conditions are met, ILITs shift from being a theoretical recommendation to a practical solution.

A Turning Point for the Industry

The insurance industry has made significant strides in digitization over the past decade. Applications, underwriting, and policy management have all become more streamlined and client-friendly.

Trust creation has not kept pace. As a result, one of the most valuable planning tools remains constrained by outdated processes. Solving this disconnect has the potential to unlock meaningful benefits for both clients and insurance brokers. Clients gain access to more sophisticated planning strategies. Brokers strengthen their advisory role and expand their value proposition. Most importantly, the conversation shifts from what is possible in theory to what can be delivered in practice.

Moving Forward

ILITs are not new. The advantages they offer are well understood within estate planning circles. What is new is the growing recognition that access, not value, is the limiting factor. As the industry continues to evolve, reducing friction around advanced planning strategies will be essential. The firms and professionals who can do this effectively will be better positioned to serve clients in an increasingly complex financial landscape.

For insurance brokers, this represents an opportunity. Not just to sell policies, but to participate more fully in the broader planning conversation. And for clients, it means access to strategies that can make a lasting difference for their families.

About the Author

Alesia Pinney, JD, MT, is Co-Founder of Legata, a company dedicated to delivering lawyer-driven estate planning technology solutions to millions of underserved individuals and families. Her work focuses on making sophisticated estate planning strategies more accessible, scalable, and practical for financial professionals and the clients they serve.