ILIT vs. Revocable Trust in Arizona: Which one is Right for You

ILIT vs. Revocable Trust in Arizona: Which one is Right for You

When it comes to estate planning in Arizona, two of the most commonly used legal tools are the **Irrevocable Life Insurance Trust (ILIT)** and the **Revocable Living Trust**. Both serve essential purposes in protecting your assets, avoiding probate, and passing wealth efficiently to your heirs. But how do they differ—and which one is best for your unique situation?

If you live in **Phoenix, Tucson, Scottsdale, Mesa, or anywhere else in Arizona**, this guide will help you understand the pros and cons of each trust structure and how it could fit into your overall estate plan.

🔒 What Is an ILIT (Irrevocable Life Insurance Trust)?

An **ILIT** is a trust that is specifically designed to hold a life insurance policy outside of your taxable estate. Once the ILIT is created and funded, the terms of the trust generally cannot be changed. While this might sound restrictive, it serves a powerful purpose: **protecting life insurance proceeds from estate taxes, creditors, and probate.**

If you’re a high-net-worth individual or business owner in Arizona with significant life insurance coverage, an ILIT may allow your beneficiaries to receive those proceeds **free of federal estate tax**—which could result in saving hundreds of thousands of dollars in some cases.

🔁 What Is a Revocable Living Trust?

A **Revocable Trust** is often the foundation of a basic estate plan. It allows you to transfer your assets into a trust that you control during your lifetime. You can modify, update, or revoke the trust at any time. Upon your death, the trust becomes irrevocable, and your designated successor trustee can manage and distribute your assets **without going through probate.**

In Arizona, where probate can still take time and add costs, a revocable trust is a popular way to **maintain privacy and streamline the estate administration process**.

🧾 ILIT vs. Revocable Trust: Key Differences

Below is a side-by-side comparison to help you decide which may be right for your situation:

🌵 Special Considerations for Arizona Residents

Arizona is a **community property state**, which affects how assets are owned and distributed at death. While revocable trusts are excellent for managing property and avoiding probate in Arizona, ILITs provide a unique advantage for those concerned about **federal estate taxes** or planning to leave behind **large life insurance policies**.

Also, with the **federal estate tax exemption set to decrease in 2026**, wealthy families in Arizona should consider acting now to lock in current benefits by setting up an ILIT.

🤔 Which Trust Should You Choose?

* **Choose a Revocable Trust** if you want flexibility, ease of use, and to avoid probate.
* **Choose an ILIT** if you are concerned about estate taxes, creditor protection, or plan to transfer wealth through life insurance.

For many Arizona residents, the best solution is to use **both** in a comprehensive estate plan—each trust serving a specific purpose.

👨‍👩‍👧‍👦 Get Trusted Guidance from Mintco Financial

At **Mintco Financial**, we specialize in helping individuals and families across Arizona design estate plans that preserve wealth, protect privacy, and reduce tax exposure. Whether you’re based in **Phoenix, Gilbert, Peoria, or Flagstaff**, we offer virtual consultations to discuss your goals and help you build a plan that works for your unique situation.