Estate taxation of life insurance proceeds centers around ownership of the policy and payment of the proceeds. If the proceeds of a policy are paid to the insured person's estate, then they will be fully subject to tax on the insured person's death.

An Irrevocable Life Insurance Trust ("ILIT") offers the opportunity of escaping taxes not just in one estate, but in several estates. The ILIT is typically a trust for the benefit of the spouse and/or children.  A life insurance policy that is placed in an ILIT is considered to have no owner. Thus, once placed in an ILIT, you do not have the power to change or cancel the life insurance policy.