How do I set up an irrevocable life insurance trust (ILIT)?

Creating an irrevocable trust isn't a do-it-yourself job; get advice from an estate planning lawyer who has plenty of experience with these rather complicated trusts.

If you're exploring the idea of an ILIT, you know that its only goal is to reduce estate taxes. And under current federal law, only the largest one-half percent of estates owe federal estate tax, because the first $5 million left ($10 million for a married couple) is exempt from tax. Some states collect their own estate tax, which can affect smaller estates.

First, talk to an estate planning lawyer about whether you really need an ILIT. If youc create one and change your mind later, you're out of luck; an ILIT can't ever be revoked. Then, get the lawyer's help with creating the trust. It must satisfy certain IRS rules, or you won't get the tax break you're hoping for.