High-net-worth individuals and business owners often seek estate planning strategies that not only preserve family wealth, but also provide liquidity, minimize estate taxes, and facilitate the efficient transfer of assets to future generations. One strategy commonly used by sophisticated taxpayers for these purposes is the combination of split-dollar life insurance and an Irrevocable Life Insurance Trust (“ILIT”). When properly structured, this approach can create substantial long-term benefits by leveraging life insurance proceeds while simultaneously reducing estate tax exposure.

Under a split-dollar life insurance arrangement, the costs and benefits of a life insurance policy are shared between two parties pursuant to a formal agreement. The arrangement is designed to allow one party to assist in funding the premiums while another party, often an ILIT, owns the policy and ultimately receives the death benefit. The flexibility of this structure allows families to tailor the arrangement to meet their particular financial and estate planning objectives.

The ILIT plays a critical role in the strategy because it may allow the life insurance proceeds to remain outside of the insured’s taxable estate. In addition to estate tax mitigation, the trust structure provides centralized control over how assets are managed and distributed to beneficiaries. As a result, families may preserve more wealth for future generations while also avoiding many of the delays and complications associated with probate and estate administration.

This strategy becomes particularly valuable in the cross-border context involving Korean families whose estates consist largely of Korea-situs assets, such as Korean real estate and stock of Korean corporations, while their children or heirs are U.S. taxpayers or U.S. residents. Unlike the United States, which currently provides a relatively large lifetime estate and gift tax exemption, Korea imposes inheritance and gift taxes with comparatively limited exemptions and significantly higher effective tax burdens. Korea is widely regarded as having one of the highest inheritance tax regimes among OECD countries, particularly in cases involving substantial estates and closely held business interests. As a result, Korean families with significant assets often face the risk that a substantial portion of their wealth may be lost to inheritance taxes upon death.

In many situations, the estate is heavily concentrated in illiquid assets such as commercial real estate, operating businesses, or appreciated stock holdings. Without proper planning, heirs may be forced to liquidate valuable family assets simply to satisfy inheritance tax obligations. The life insurance proceeds generated through the split-dollar arrangement can provide immediate liquidity, allowing the family to preserve those assets rather than selling them under unfavorable circumstances.

At the same time, the ILIT structure can help facilitate the orderly transition of wealth to U.S.-resident beneficiaries while providing long-term asset protection and centralized succession planning. Properly structured, the arrangement may help families preserve multigenerational wealth, maintain ownership of core family assets, and reduce overall estate tax inefficiencies across jurisdictions.

For internationally connected families, particularly those with substantial Korean assets and U.S.-resident heirs, the combination of split-dollar life insurance and an ILIT can serve as a highly effective wealth preservation and succession planning strategy. Because these arrangements involve complex legal, tax, and cross-border considerations, they should be carefully designed and implemented in coordination with experienced legal, tax, and insurance advisors.