Using an ILIT to own the insurance offers some significant advantages over individual ownership of the policy by the insured's children. For example:

• If you intend for your spouse to benefit from the life insurance, an ILIT can be used to provide for the surviving spouse, with any balance remaining at the spouse's death passing to the children.
• An ILIT can be structured to continue after your death as a vehicle to manage and preserve wealth for your children (and/or grandchildren). For example, optional management assistance can be provided by naming a trusted family member to serve as trustee, or by naming a professional trustee or co-trustee. And holding the proceeds in trust can preserve their exemption from creditors' claims and keep them beyond the reach of a divorce court's property settlement powers.
• If properly structured, an ILIT can not only avoid estate taxes on your death, but also--substantially if not entirely–on your children's deaths. Insurance on your life owned directly by your children--to the extent not consumed by them during their lifetimes--will be included in their estates for federal estate tax purposes when they die.
• With an ILIT, you can control the future beneficial ownership of the insurance (for example, you might provide for trusts that last for your children's respective lives and then continue for the lives or their children). However, if your children own the insurance directly, they can sell and/or will their interest in the policy to whomever they please.
• With an ILIT, you can provide a source of cash to the executor of your estate for the payment of estate taxes. (Generally, an ILIT will be coordinated with your Will to facilitate this.) However, if your children own the insurance directly, it may not be possible to force them all to apply their respective shares of the insurance proceeds toward the payment of your estate taxes.