Most Brooklyn families do not realize that life insurance you own is counted in your taxable estate. With New York’s estate tax exclusion and its punishing cliff, a large policy can be the very thing that tips an estate over the edge. An Irrevocable Life Insurance Trust (ILIT) is the classic tool to keep those proceeds out. This checklist explains when and how.
Checklist 1: Confirm you have a tax problem worth solving
New York’s 2026 estate tax exclusion is $7,350,000, with a cliff at roughly $7,717,500 — exceed it and the entire exclusion vanishes, taxing the estate from the first dollar. Now add the policy: a Brooklyn homeowner with an appreciated brownstone, retirement accounts, and a $2 million death benefit can sail past the cliff. Because the death benefit is included in your estate when you own the policy, it can be the deciding factor. If you are comfortably below the exclusion, you likely do not need an ILIT.
Checklist 2: Understand what an ILIT does
An ILIT is an irrevocable trust (governed by EPTL Article 7) that owns your life insurance policy. Because the trust — not you — owns it, the proceeds are generally excluded from your taxable estate. The trust then holds and distributes the cash to your beneficiaries according to your instructions. The trade-off is permanence: irrevocable means you give up control and the ability to undo it.
Checklist 3: Decide new policy vs. transferring an existing one
You can have the ILIT buy a new policy from the start, or transfer an existing policy into it. Watch the three-year rule: if you transfer an existing policy you own and die within three years, the proceeds are pulled back into your estate as if the transfer never happened. Many Brooklyn families avoid this by having the trustee apply for a new policy directly, so you never personally own it.
Checklist 4: Handle premiums and Crummey notices
You typically fund premiums by gifting cash to the ILIT. To make those gifts qualify for the annual gift tax exclusion, the trust usually gives beneficiaries a temporary right to withdraw the gift — documented by Crummey notices. Skipping these notices is one of the most common ILIT mistakes. The trustee must send them and keep records.
Checklist 5: Name the right trustee
You cannot be the trustee of your own ILIT without risking inclusion in your estate. Choose an independent trustee — a trusted individual or a professional fiduciary — who will pay premiums on time and send the Crummey notices reliably.
Checklist 6: Know what an ILIT does not do
An ILIT is a tax tool, not a probate cure-all. By contrast, a revocable living trust avoids probate in Kings County Surrogate’s Court (under the SCPA) but gives no estate tax saving. Different jobs, different tools. And neither replaces your power of attorney (GOL 5-1513) or health care proxy (PHL Article 29-C), which govern decisions while you are alive.
When an ILIT is overkill
For estates safely below the New York exclusion, the cost and rigidity of an ILIT often are not justified. The analysis hinges on your total estate value relative to the cliff — which is exactly why a Brooklyn owner should value their real estate honestly before deciding.
Consult a New York Attorney
ILITs involve irrevocable commitments, the three-year rule, and ongoing administration that must be done correctly to preserve the tax benefit. Before establishing one, consult a qualified New York estate attorney familiar with Kings County practice. This article is general information, not legal advice.
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