Houston, Texas – Houston trust attorney Whitney L. Thompson of The Law Office of Whitney L. Thompson, PLLC (https://www.wthompsonlaw.com/managing-your-wealth-through-irrevocable-life-insurance-trusts/) is drawing attention to the strategic use of Irrevocable Life Insurance Trusts (ILITs) as federal estate and gift tax thresholds shift for high net worth households. With federal law setting the basic estate and gift tax exclusion at $13.99 million per person for 2025 and $15 million per person starting in 2026, many families in River Oaks, Memorial, West University Place, Bellaire, and other Houston neighborhoods are reassessing how life insurance proceeds should pass to heirs. An ILIT can help keep policy proceeds outside the taxable estate while supporting long term wealth preservation and smoother administration for future generations.
According to the Houston trust attorney, an ILIT serves as a dedicated ownership structure for one or more life insurance policies, positioning the trust as the policy owner and beneficiary. This arrangement can reduce potential estate tax exposure and provide immediate liquidity for heirs at a time when other assets may be illiquid or subject to delayed settlement. By transferring the policy to the ILIT or having the ILIT purchase a new policy, families can plan ahead for future tax law changes, reduce the risk of estate inclusion, and better align life insurance benefits with broader estate planning goals.
Proper ILIT design requires careful attention to federal tax rules. Best practice is for the grantor to appoint an independent trustee so that no “incidents of ownership” over the policy, such as the power to change beneficiaries or control policy rights, are retained in a way that would bring the death benefit back into the taxable estate under Internal Revenue Code §2042. The ILIT must own the policy and pay the premiums, typically from a bank account in the trust’s name. Contributions to the trust can raise gift tax questions, which many families address through Crummey withdrawal powers that grant beneficiaries a temporary right to withdraw contributions so that transfers qualify for the annual gift tax exclusion, currently $19,000 per recipient for 2025.
The Houston trust attorney also notes that ILITs come with significant limitations that must be evaluated before formation. Because an ILIT is irrevocable, changing trustees, modifying distribution terms, or terminating the trust can require beneficiary consent, court approval, or both. In addition, ILITs may involve substantial setup costs and ongoing administration, making them more suitable for families with meaningful life insurance coverage and clear multigenerational planning objectives. When properly designed and maintained, an ILIT can help protect life insurance proceeds from estate taxation, provide creditor protection, and structure distributions for minor or financially inexperienced beneficiaries.
About The Law Office of Whitney L. Thompson, PLLC:
The Law Office of Whitney L. Thompson, PLLC is a Houston-based estate planning and probate law firm serving clients throughout River Oaks, West University Place, Bellaire, Memorial, Houston Heights, Montrose, Midtown, and the Museum District. Attorney Whitney L. Thompson advises on wills, trusts, probate, guardianship, and long-term wealth transfer strategies, including Irrevocable Life Insurance Trusts and other advanced planning tools. The firm focuses on tailoring plans to each client’s family dynamics, business interests, and tax considerations. For more information or to schedule a consultation with a Houston trust attorney, contact The Law Office of Whitney L. Thompson, PLLC at (281) 214-0173 or visit the firm’s website to request an appointment.
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Company Name: The Law Office of Whitney L. Thompson, PLLC
Contact Person: Whitney L. Thompson
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Phone: (281) 214-0173
Address:4201 Farm to Market 1960 Rd W Suite 360, Box #116B
City: Houston
State: Texas 77068
Country: United States
Website: https://www.wthompsonlaw.com/