Benefits of Life Insurance Trusts for Seniors

 Posted on May 20, 2025 in Estate Planning

Estate planning is not a one-size-fits-all endeavor. Seniors have a broad range of options for ensuring that the assets they worked to attain during their lifetime are protected after their passing and that their family members are taken care of as well. One of the tools that can be incorporated into a senior citizen’s estate plan utilizes life insurance to protect assets for the future. The specific instrument utilized to do this is called the Irrevocable Life Insurance Trust (ILIT), and it is a powerful way to protect your future. An experienced San Antonio, TX estate planning attorney can advise you on whether incorporating a life insurance trust into your estate plan is the right option for you. 

What is an ILIT?

An ILIT is a trust that holds your life insurance. Because it is irrevocable, an ILIT may not be amended or terminated once it is created, except in rare cases and with the beneficiaries’ consent. When you set up an ILIT, you transfer ownership of your life insurance to the trust, and the trust becomes the beneficiary of the life insurance. 

What Are the Benefits of an ILIT?

Asset Protection

As a senior citizen making your estate plan, you are likely concerned with ensuring that your family is protected financially when you pass, and that the assets you earned over a lifetime are protected as well. Because the trust owns the policy, the proceeds are not considered part of your estate and are generally protected from creditors. That means that it is your chosen beneficiaries who receive the proceeds–not creditors. 

Tax Savings

Putting your life insurance in an ILIT also takes it out of your taxable estate, reducing the taxes that could be assessed on your estate when you pass. An ILIT may complement other Medicaid planning tools by potentially reducing countable assets for eligibility purposes, but it must be set up carefully to avoid penalties during Medicaid’s five-year lookback period. Texas has strict rules about who is eligible for Medicaid, which makes it difficult for older adults who want to ensure they have Medicaid protection but also want to leave assets to beneficiaries. An ILIT can work alongside other Medicaid planning strategies by reducing the value of a senior’s assets that will count towards Medicaid eligibility. 

Control 

An ILIT lets you have control over how your life insurance proceeds are distributed. For example, you can space out contributions over time to protect beneficiaries who may be big spenders from their excessive spending habits. 

Call a San Antonio, TX Estate Planning Attorney

At The Law Office of Ryan C. Moe, PLLC we represent senior citizens who wish to draft or amend their estate plans. If you have life insurance, an experienced San Antonio, TX estate planning attorney can incorporate it into your estate plan by setting up an ILIT. Call us at 210-861-6000 to set up a consultation.