Photo by syahrir maulana/Getty Images Money by BLACK ENTERPRISE Editors How Wealthy Families Use Life Insurance Trusts To Cut Estate Taxes Estate taxes can create challenges for families whose wealth is tied up in illiquid assets. Estate taxes can create challenges for families whose wealth is tied up in illiquid assets. Rather than requiring beneficiaries to sell investments or family-owned companies to cover federal estate taxes, an ILIT allows a life insurance policy’s death benefit to be held outside of the taxable estate when structured correctly. Failing to provide those notices can jeopardize the trust’s tax treatment and potentially pull the insurance proceeds back into the taxable estate. Permanent life insurance policies, which are commonly used with these trusts, often carry significantly higher premiums than term life insurance.