ILIT Premium Gift Calculator

Frequently Asked Questions

What is an ILIT?

An Irrevocable Life Insurance Trust owns a life-insurance policy on your life so the death benefit passes outside your taxable estate. You gift cash to the trust each year to pay premiums. This is general education, not legal advice.

How are Crummey notices used?

When you contribute premium money to the ILIT, the trustee sends each beneficiary a "Crummey notice" giving them a temporary right to withdraw their share (usually 30 days). That present-interest right qualifies the gift for the annual gift-tax exclusion - about $19,000 per beneficiary in 2026 (indexed).

How many beneficiaries can absorb the gift?

Total exclusion = annual exclusion × number of beneficiaries with Crummey rights. With 4 beneficiaries at $19,000 each, an ILIT can absorb up to $76,000/year in premium gifts without using lifetime exemption.

What if premiums exceed the annual exclusion?

The excess uses your lifetime gift/estate exemption (or, if exhausted, triggers gift tax). Many ILITs are designed so total annual premium fits inside available exclusions across all beneficiaries. Run scenarios with an estate planner before signing.

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Estimates for informational purposes only.

Important Disclaimer: Estimates for informational purposes only.

This calculator provides estimates for informational purposes only. Results are based on assumptions and may not reflect actual outcomes. Consult qualified professionals in relevant fields before making important decisions based on these results.

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How This Calculator Works

An Irrevocable Life Insurance Trust (ILIT) owns a life-insurance policy outside the insured's estate, so the death benefit avoids the 40% federal estate tax. To pay premiums, the grantor gifts cash to the ILIT each year. To qualify those gifts for the annual gift-tax exclusion (currently $19,000 per donee in 2026, indexed), the trust must give each beneficiary a temporary right to withdraw their share - a "Crummey" power - documented with a Crummey notice. Beneficiaries traditionally let the window lapse, the cash stays in the trust, and the gift is treated as a present interest that fits inside the annual exclusion. This calculator shows whether the planned premium fits inside the combined Crummey exclusions across N beneficiaries, what overage (if any) eats into lifetime exemption, and how much lifetime exemption is consumed over the full premium term.

Formula / Method

Exclusion capacity = annual exclusion × number of beneficiaries = $19,000 × N. Covered by exclusion = min(annual premium, capacity). Annual overage = max(0, premium − capacity). Lifetime overage = annual overage × premium years. Lifetime exemption used = min(exemption available, lifetime overage). Premium fits cleanly when the annual overage is zero. The annual exclusion is per donee per donor per year - married couples can elect gift-splitting to double the exclusion to $38,000 per beneficiary, frequently doubling the policy size an ILIT can quietly support. Hanging powers (a lapse mechanism that staggers the 5/5 power over time) let larger premiums qualify without triggering a reciprocal gift back from beneficiary to grantor, but they require careful drafting.

Worked Example

Suppose a $5M permanent life policy costs $40,000 in annual premium, the ILIT has 3 beneficiaries, the grantor expects to pay for 20 years, and has $7,000,000 of lifetime exemption available. Exclusion capacity = 3 × $19,000 = $57,000. Premium of $40,000 fits comfortably inside - annual overage = $0, lifetime exemption used = $0. The full $5M death benefit eventually passes estate-tax-free, saving heirs roughly $2,000,000 at the 40% top rate. If instead the premium were $90,000 per year, the annual overage would be $33,000, lifetime overage over 20 years = $660,000, and that amount would be carved out of the grantor's lifetime exemption (exemption remaining at end ≈ $6,340,000). No gift tax is owed in either case while exemption remains, but exemption consumed at the ILIT is exemption unavailable for other lifetime transfers or the estate.

Common Mistakes

Skipping the Crummey notice - without contemporaneous written notice, gifts are future interests and lose the annual exclusion entirely.

Giving the trust the premium and having the trustee write the check the same day - the beneficiaries must have a real, reasonable opportunity (typically 30 days) to withdraw.

Transferring an existing policy into the ILIT and dying within 3 years - the §2035 three-year rule pulls the death benefit back into the estate. Originate the policy in the trust to avoid this.

Naming the grantor or grantor's spouse as trustee, or letting the grantor pay premiums directly to the insurer rather than gifting cash to the trust - both can cause estate inclusion under §2042.

Forgetting gift-splitting on Form 709 - married couples can double exclusion capacity but must elect annually.

Underestimating premium growth on a guaranteed universal-life policy or variable-life policy - rising premiums can exhaust exclusion capacity in later years.

Tips & FAQ

The right number of Crummey beneficiaries is the lesser of (a) the people you actually want as remainder takers and (b) what the trust's economics need. Adding contingent beneficiaries purely to inflate the exclusion is an old technique the IRS has eyed (the Cristofani line of cases) but generally permitted when beneficiaries have a genuine, even-if-remote interest in the trust. Married couples should always evaluate gift-splitting, which doubles per-beneficiary capacity. With the 2026 exemption around $7M individual / $14M couple after the sunset, ILITs become more important for upper-middle-class estates than they were during the 2018–2025 doubled-exemption window: a $3M death benefit at a 40% top rate is $1.2M of estate tax that an ILIT removes from the equation. This calculator is educational only and not legal or tax advice - ILIT drafting and Crummey administration are areas where a qualified estate attorney pays for themselves quickly.

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