IRREVOCABLE LIFE INSURANCE TRUST (ILIT)

Purpose: The Purpose of an ILIT is to avoid WA Estate Tax* by having the Trust own and be the Primary Beneficiary of the Policy rather than an individual owning the Policy and individuals or the Revocable Living Trust be the Beneficiary which would include the proceeds of the Life Insurance in the Decedent’s Estate and therefore make it subject to Estate Tax.

No Estate Tax is due on the first $3 Million* as of July 1, 2025.

$0 – $1,000,000 (2.5%-Rate on Whole Estate (ROI) 10% – $4 Million pays $100,000

$1,000,001 – $2,000,000 (5.0%-Rate on Whole Estate) 15% – $5 Million pays $100,000 + $150,000 = $250,000

$2,000,001 – $3,000,000 (7.0%-Rate on Whole Estate) 17% – $6 Million pays $250,000 + $170,000 = $420,000

$3,000,001 – $4,000,000 (8.71%-Rate on Whole Estate) 19% – $7 Million pays $420,000 + $190,000 = $610,000

$4,000,001 – $5,000,000 (10.5%-Rate on Whole Estate) 23% – $8 Million pays $610,000 + $230,000 = $840,000

$5,000,001 – $6,000,000 (11.88%-Rate on Whole Estate) 23% – $9 Million pay $840,000 + $230,000 = $1,070,000

$6,000,001 – $7,000,000 (13.3%-ROI) 26% – $10 Million pays $1,070,000 + $260,000 = $1,330,000

$7,000,001 – $8,000,000 (14.81%-ROI) 30% – $11 Million pays $1,330,000 + $300,000 = $1,630,000

$8,000,001 – $9,000,000 (16.08%-ROI) 30% – $12 Million pays $1,630,000 + $300,000 = $1,930,000

$9,000,001 – $10,000,000+ (17.54%-ROI) 35% – $13 Million pays $1,930,000 + $350,000 = $2,280,000

$10,000,001 – $11,000,000 (18.78%-ROI) 35% – $14 Million pays $2,280,000 + $350,000 = $2,630,000

$11,000,001 – $12,000,000 (19.87%-ROI) 35% – $15 Million pays $2,630,000 + $350,000 = $2,980,000

$12,000,001 – $13,000,000 (20.81%-ROI) 35% – $16 Million pays $2,980,000 + $350,000 = $3,330,000

$13,000,001 – $14,000,000 (21.65%-ROI) 35% – $17 Million pays $3,330,000 + $350,000 = $3,680,000

$14,000,001 – $15,000,000 (22.39%-ROI) 35% – $18 Million pays $3,680,000 + $350,000 = $4,030,000

$15,000,001 – $16,000,000 (23.05%-ROI) 35% – $19 Million pays $4,030,000 + $350,000 = $4,380,000

$16,000,001 – $17,000,000 (23.65%-ROI) 35% – $20 Million pays $4,380,000 + $350,000 = $4,730,000

Establishing an Irrevocable Life Insurance Trust (ILIT) involves complex interactions between state Trust law and Federal tax Code, specifically the Internal Revenue Code (IRC) Section 2035(d) (the “three-year rule” regarding asset transfers before death) and Internal Revenue Code (IRC) Section 2042 (incidents of ownership rules that dictate if proceeds are included in the taxable Estate). 

* The Washington Estate Tax Exemption is indexed to inflation which is about 2.7% per year. So, the $3 Million* Exemption is expected to increase by about $81,000 per year. The Federal Estate Tax Exemption of $15 Million* per person is also indexed to inflation, so it is expected to increase the $30 Million*per couple exemption by about $810,000 per year. Estate Tax Exemptions and Tax Rates may also be adjusted periodically by passage of State and Federal Laws.

RCW 48.18.450: This statute specifically addresses how life insurance proceeds can be made payable to a Trustee named as a Beneficiary in the policy, validating the use of a Trust (including an ILIT) to receive these funds.

• RCW 11.98.072: This Code section outlines the notification requirements for Trustees to keep Beneficiaries informed about the Trust’s existence and Administration, which is a critical administrative component of managing an ILIT.

  RCW 11.98.170: This section relates to the designation of a Trustee as a Beneficiary of a life insurance policy or retirement plan.

  RCW 48.102.020(25): This RCW chapter on life insurance settlements defines and prohibits “stranger-originated life insurance” (STOLI), ensuring that the Trust arrangement has an insurable interest and isn’t just a wagering scheme. 

The Trust is Irrevocable and cannot be changed once created; if the Life Insurance Policy owned by the ILIT lapses, then the Trust becomes moot.

An ILIT is part of the overall Estate Tax Plan for which you have already paid $1,5000. The ILIT costs an additional $5,000 because of the irrevocability, complexity, risk, and enormous amount of Estate Tax savings, potentially in the millions of dollars. ILIT’s typically apply to people whose assets exceed $9 million*.

The $5,000 price includes an ILIT for each spouse’s Life Insurance Policies regardless of how many policies each spouse owns. You can pay via:  ZELLE QR CODE csmulvaney@gmail.com 425-786-3470.

Other options included: Family LLC’s ($10,000),

Irrevocable Charitable Remainder Trusts (ICRT) ($15,000) &

Irrevocable Non-Grantor Asset Protection Trusts (IAPT) ($15,000).

There are other options such as Spousal Lifetime Access Trusts (SLAT), Grantor Retained Annuity Trusts (GRAT), Intentionally Defective Grantor Trusts (IDGT), but I have, not been asked to create them.

I am not allowed to create Self-Settled Grantor Asset Protection Trusts because they are not permitted in Washington State, and I am no longer licensed in Nevada.