Life Insurance Trusts (ILITs), Explained for Brooklyn Families

For many Brooklyn families, a life insurance policy is the single largest asset they own. The question is not whether to have coverage, but who should own it. That choice can decide whether the death benefit flows cleanly to your kids or gets pulled into a taxable estate. Below is a comparison of the three common ways to hold life insurance in New York.

Option 1: You Own the Policy Yourself

This is the default. The trouble is that under New York and federal rules, a policy you own (or control) is counted in your taxable estate. With New York’s 2026 estate tax exclusion at $7,350,000 and a hard cliff at $7,717,500, a sizable policy can push a Bay Ridge homeowner with appreciated property over the line. Cross that cliff and the entire estate is taxed, not just the overage. Outright ownership is simple, but it offers zero tax shielding.

Option 2: A Beneficiary Owns the Policy

Having an adult child own the policy keeps it out of your estate, but you lose control. Their creditors, divorce, or spending habits can reach the money, and you cannot dictate how a payout to a minor or a struggling relative is used. It is cheap and informal, which is exactly the problem when six or seven figures are at stake.

Option 3: An Irrevocable Life Insurance Trust (ILIT)

An ILIT, governed by EPTL Article 7, owns the policy on your behalf. Because the trust (not you) holds the policy, the death benefit generally sits outside your taxable estate while a trustee controls distributions on terms you set. For a Brooklyn family worried about the estate tax cliff, this is the tool that combines tax efficiency with control.

The trade-offs are real. An ILIT is irrevocable, so you give up the right to change your mind freely. Premiums are typically funded through annual gifts, often paired with “Crummey” notices to beneficiaries to qualify for the gift tax annual exclusion. And if you transfer an existing policy into the ILIT, a three-year lookback can drag it back into your estate if you die within that window, so funding a brand-new policy inside the trust is usually cleaner.

Which Comparison Wins for You?

If your estate is comfortably under the exclusion, an ILIT may be overkill, and simple beneficiary planning works. If you own a brownstone that has multiplied in value plus a healthy policy, an ILIT can be the difference between your heirs receiving the full benefit and watching a chunk vanish to tax. The right answer depends on the size of your Brooklyn estate today and where you expect it to land.

A Few Practical Notes for Brooklyn

Real estate is what tips many Kings County estates over the cliff. A two-family home in Park Slope or Williamsburg bought decades ago can carry an enormous gain. When you map your estate, value the property realistically, then layer the life insurance on top before deciding whether an ILIT belongs in the plan.

ILITs are powerful but unforgiving of mistakes in drafting and funding. Before creating one, consult a licensed New York estate planning attorney who can weigh it against simpler alternatives and confirm it fits your situation. This article is general information, not legal advice.