Irrevocable Life Insurance Trusts for Phoenix Families
If you own a home in Arcadia or Paradise Valley, run a business in North Scottsdale, or have built up savings in Ahwatukee, you may be wondering whether your life insurance could cause problems for your heirs. It can, depending on who owns the policy. An irrevocable life insurance trust, or ILIT, is one way to keep the death benefit out of your taxable estate and to name a trustee who manages the money for your family after you are gone.
This page focuses on what is different in Arizona. If you want the full picture of how these trusts work, start with our irrevocable life insurance trust guide. One important note: Western Pacific Insurance is an insurance agency, not a law firm. An Arizona estate planning attorney drafts the trust, and we help design and place the policy the trust owns. Nothing on this page is legal or tax advice.
Does Arizona have an estate tax?
No. Arizona does not charge its own estate tax, so the tax to plan around is the federal one. For 2026, the IRS sets the federal basic exclusion amount at $15,000,000 per person. A married couple can often protect up to $30,000,000 together by using portability, which lets a surviving spouse claim the unused portion of the first spouse’s exclusion.
Most families are well under those limits and will never owe federal estate tax. The catch is that a life insurance policy you own yourself counts as part of your estate. A large death benefit, added to a home, a business, and retirement accounts, can push some Phoenix families closer to the line than they expect.
How community property affects an ILIT
Arizona is a community property state. Under A.R.S. 25-211, most property either spouse acquires during marriage is treated as community property, with exceptions such as gifts and inheritances. Two things follow for an ILIT.
If an existing policy was paid for with community funds, both spouses may have a legal interest in it, so moving it into a trust usually takes both signatures. And when premium gifts to the trust come out of community accounts, each spouse may be treated as giving half. Neither point is a reason to skip an ILIT. They are simply good reasons to hire an attorney who works with Arizona community property law all the time.
What Arizona trust law covers
Trusts in Arizona fall under the Arizona Trust Code, which begins at A.R.S. 14-10101. It sets out what a trustee must do, what beneficiaries have a right to be told, and when a trust can be changed. Your attorney can explain how much flexibility to build in, such as a trust protector or a way to replace the trustee, without weakening the estate tax goal that made you want the trust in the first place.
Paying for the trust, and the three-year rule
Most families fund an ILIT with yearly gifts. The trustee uses that money to pay the policy premiums. To qualify those gifts for the federal annual exclusion, which the IRS lists at $19,000 per recipient for 2026, each beneficiary gets a brief right to withdraw the gift, along with a written notice known as a Crummey notice.
There is one timing rule worth knowing. If you transfer a policy you already own into the trust and then die within three years, federal law pulls the death benefit back into your estate. Having the trust buy a new policy from the start generally avoids that problem.
Which policies tend to fit
Couples whose estate tax exposure is mostly at the second death often consider second-to-die coverage, which pays only after both spouses have passed away. Parents of young children sometimes prefer term coverage owned by the trust, since it can cover the years when the family depends on your income most. We compare designs from multiple carriers so that you, your attorney, and your CPA can pick what makes sense. Not sure how much coverage you need? Start with how much life insurance Phoenix families need.
Second homes and business owners
Plenty of Phoenix households own a getaway in Flagstaff or Pinetop, or a home in another state. Those properties are often placed in a revocable living trust to avoid probate in more than one state. That is a separate document from an ILIT and does a different job. If your home sits in a revocable trust, make sure your homeowners policy lists the trust correctly. Our Arizona trust homeowners insurance page walks through how.
If you own a business here in the Valley, you may also have life insurance that funds a buy-sell agreement, separate from the coverage meant for your family. We help you keep track of which policy has which owner and beneficiary, because mix-ups there can cause real trouble later.
Questions to bring to your attorney and agent
- Are any of our current policies community property, and how would we handle moving one into a trust?
- Should the trust buy new coverage, and would a second-to-die policy suit us better than coverage on one person?
- Who will be the trustee, and who steps in if that person cannot serve?
- How will we make the yearly premium gifts and send and record the Crummey notices?
Talk to us about Phoenix
Western Pacific Insurance helps families across Arizona, Nevada, California, and Utah. We also have local pages for Henderson, San Diego, and Lehi. For the basics of coverage near you, see our Phoenix life insurance page and our individual life insurance overview. Gather a summary of your current policies and your attorney’s contact information, then call 702-932-3105 or request a quote online.
