How Colorado business owners and families can use ILITs for lasting protection

At Kinney Law Office, we help families and business owners across the North Denver Metro area build estate plans that truly work when their loved ones need them. One powerful tool we often recommend—especially for clients with family businesses, real estate, or life insurance—is the Irrevocable Life Insurance Trust, or ILIT.

You may think of life insurance simply as a personal safety net—but in the right legal structure, it becomes much more. For business owners, blended families, and anyone who wants to keep their affairs private and under control, an ILIT can be a game changer.

What Is an ILIT?

An Irrevocable Life Insurance Trust is a legal structure designed to own and manage life insurance policies outside of your personal estate. Once established, the ILIT—not you—owns the policy and is the beneficiary of the death benefit. The trust is also governed by a trustee, whom you appoint, and it contains detailed instructions about how the proceeds should be managed and distributed.

Why “irrevocable”? Once the trust is created and funded, you can’t take it back or change its terms—this permanence is what gives the ILIT its strength in shielding assets and protecting beneficiaries.

How Is an ILIT Created?

Creating an ILIT involves a few clear steps:

• Work with an estate planning attorney to draft the trust agreement and choose your trustee and beneficiaries.
• Fund the trust by having the ILIT purchase a new life insurance policy, or by transferring an existing one (note: transferring an existing policy can have tax implications and timing requirements).
• Make annual contributions to the trust so the trustee can pay the premiums. These contributions may qualify for gift tax exclusions if properly structured.
• Upon your passing, the policy pays out to the ILIT, and the trustee distributes the funds according to your wishes.

This structure allows you to maintain control over the “how and when” of the life insurance payout—while keeping the policy separate from your taxable estate and outside the reach of probate.

Why Should Business Owners Care?

Here in Broomfield, Westminster, Thornton, and surrounding areas, we work with many small business owners and professionals who use ILITs to solve real-world planning challenges. ILITs are especially valuable for:

• Business Succession Planning

  An ILIT can provide the cash needed for a business partner or key employee to buy out your share if something happens to you. This keeps your business running and protects your family’s financial interests—without leaving them with an ownership stake they can’t manage.

• Inheritance Equalization

  Many business owners want to pass the company to one child who works in it, while still leaving something meaningful to other children. An ILIT can be used to fund equal inheritances without dividing or destabilizing the business.

• Planning for Minors or Vulnerable Heirs

  If your beneficiaries are too young, too inexperienced, or not yet ready to manage a large inheritance, the ILIT allows your trustee to distribute funds over time, for specific purposes (education, health care, housing, etc.).

• Avoiding Probate

  Life insurance proceeds paid into an ILIT do not go through probate, meaning your family gets faster access to funds—without court oversight or public filings.

ILITs in Action: A Colorado Business Owner Example

Let’s say you’re a business owner in Broomfield with a growing HVAC company and a $1.5 million life insurance policy. You want the business to continue if something happens to you, and you want your family to receive the value of your hard work.

With an ILIT, you could:

1. Have the ILIT own the life insurance policy.
2. Design the trust so a portion of the proceeds fund a buy-sell agreement with your business partner.
3. Distribute the remaining funds to your family according to the plan you’ve created—with protections in place for minor children or special circumstances.

No courts. No confusion. Just a clear, thoughtful plan.

Other Ways ILITs Can Help North Metro Families

• Preventing Family Conflict – Avoid disagreements by naming a neutral trustee and setting clear instructions.
• Planning for Blended Families – Ensure your current spouse is supported, while preserving assets for children from a previous relationship.
• Providing Real Estate Liquidity – Use life insurance proceeds to help your family hold or transfer investment property or mountain land, without being forced to sell under pressure.

Is an ILIT Right for You?

At Kinney Law Office, we help clients throughout Broomfield, Erie, Lafayette, Westminster, Thornton, and beyond evaluate whether an ILIT fits their estate plan. It’s not just about taxes. It’s about control, continuity, and care for the people you love.

📞 Call us at (303) 386-4328
📅 Or schedule your Estate Strategy Session here.

Let’s make sure your life insurance—and your legacy—works the way you intend.