Estate planning 2.0: How ILITs can create liquidity

After decades of building wealth, families start asking a different set of questions about what comes next.

In advanced markets, that question tends to surface once a full balance sheet is on the table.

A closely held business’ appreciated real estate, concentrated positions and a life insurance policy that hasn't been reviewed in years often tell the same story: The assets are strong. The strategy around them hasn't kept pace.

Consider a family whose estate includes a $12 million operating business and several million dollars in real estate. On paper, the balance sheet looks solid, yet liquidity is limited to covering estate taxes without forcing a sale.

A scenario like this shows up more often than expected, and once it surfaces, decisions tend to accelerate. Irrevocable life insurance trusts are returning to the center of these discussions because they solve that exact situation. Liquidity becomes available when it's needed, and control over how wealth transfers stays intact.

Why ILITs are gaining renewed attention

Estate tax exposure grows alongside asset values, business expansion and long-term appreciation across portfolios.

The IRS broadly defines a taxable estate to include cash, securities, real estate, insurance, trusts, annuities and business interests. A definition that expands increases the likelihood that estates will exceed thresholds, particularly when illiquid assets represent a large share of the estate's total value.

Federal exemption levels have climbed to $15 million in 2026, yet state-level estate taxes continue to apply at much lower thresholds in many areas.

Across advanced planning strategies, urgency tends to build once families see how much of their estate is exposed. Preparation carries more weight than waiting at that stage.

How structure creates control and flexibility

An ILIT separates ownership of the life insurance policy from the insured, allowing the death benefit to pass outside the estate when structured correctly.

Liquidity becomes available when needed, without forcing the sale of long-term assets or disrupting broader planning goals.

Second-to-die policies continue to play a central role in larger estate plans because they align with how estate tax liability is triggered. Premium allocation becomes more efficient, and coverage aligns with the timing of tax exposure.

Families with more complex balance sheets are also exploring premium financing strategies to preserve capital while maintaining flexibility. Coordinating those strategies requires alignment across financial professionals, and the strongest outcomes consistently come from well-orchestrated and properly credentialed professional teams.

Execution matters more than design

ILIT strategies require precision, and small missteps can create unintended consequences. Common areas where execution breaks down include, but are not limited to:

• Improper administration of Crummey notices, which are used to give beneficiaries temporary access to gifted funds, so contributions qualify for annual gift tax exclusions.
• Retaining elements of ownership that bring policies back into the estate.
• Overlooking the three-year lookback period when transferring existing policies.
• Inconsistent funding strategies that weaken long-term results.

Getting these details right determines whether the strategy works.

Advanced planning rarely hinges on introducing new ideas. Results come from consistently executing proven strategies with attention to detail.

What does this mean in practice?

Planning at this level requires more than product knowledge. Families expect guidance that connects tax exposure, liquidity, protection and legacy goals into a cohesive strategy.

Time spent working alongside advanced sales teams continues to show how quickly confidence builds when structure is clear and coordination is strong. A well-designed ILIT often serves as the anchor that enables other parts of the strategy to function more effectively.

Clear alignment naturally opens the door to broader conversations, including business succession, multigenerational wealth transfer and charitable intent.

Preparation creates the advantage

Estate planning becomes more effective when decisions are made early and carried through with discipline.

The next most practical step is to review existing policies and ownership structures. Many estate plans already include life insurance that was purchased for a different purpose or at a different stage of life. Repositioning those assets within a coordinated structure can create immediate value.

Look at the balance sheet the way families do. Where is liquidity today, and where will it be needed later? How will assets transfer without disrupting what has been built? Strong preparations answer those questions before they become urgent.

Start with a review. Bring the right financial professionals into the conversation. Build a structure that supports the outcome families are working toward.

Real value shows up when the strategy becomes tangible and actionable.

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Bill Levinson is the managing partner at Levinson & Associates, an AmeriLife company. Contact him at [email protected].