An Irrevocable Life Insurance Trust (ILIT) is a legal tool used to hold life insurance policies outside of an individual’s taxable estate. In Lafayette and Contra Costa County, families turn to the Law Offices of Robert P. Bergman for careful, personalized planning that aligns with California law and local needs. An ILIT can protect proceeds from estate tax exposure, provide liquidity for heirs, and control policy distribution in a way a beneficiary designation alone cannot. We discuss practical considerations, timing, and how an ILIT coordinates with wills, powers of attorney, and health care directives to create a stable plan for the future.
Setting up an ILIT requires attention to document language, funding mechanics, and ongoing trust administration so the intended benefits are realized. The process often includes drafting the trust, transferring an existing policy or arranging new policy ownership, and establishing trust terms that reflect your wishes for heirs, charitable gifts, and distributions for special needs or education. In Lafayette and throughout California, this approach helps families plan for tax consequences and liquidity needs while reducing the chance of unintended probate complications. Early planning and coordinated documents make the transition smoother for trustees and beneficiaries when life events occur.
An ILIT offers important advantages for many families, including potential estate tax mitigation, creditor protection of the insurance proceeds, and structured distribution to beneficiaries. For those with significant life insurance benefits or estate values that could trigger tax concerns, placing a policy in an ILIT removes the policy proceeds from the grantor’s taxable estate if properly established and funded. Beyond tax planning, an ILIT can provide clear instructions for how proceeds are used, whether to support minors, provide for a surviving spouse, fund charitable gifts, or establish a trust for a family member with special needs. Careful drafting also sets expectations for trustees and trustees’ discretionary powers.
The Law Offices of Robert P. Bergman offers personalized estate planning services tailored to the needs of Lafayette and Contra Costa County residents. We focus on clear, practical documents that work with California statutes and your family’s circumstances, including wills, revocable living trusts, powers of attorney, and ILITs. Our approach emphasizes careful communication, thorough document review, and a steady process for implementation and funding of trust vehicles. Clients appreciate direct guidance on how an ILIT interacts with retirement plan designations, beneficiary issues, and other planning tools so the overall plan functions as intended during life and after death.
An ILIT is an irrevocable trust that owns and controls life insurance policies for the benefit of designated beneficiaries. Once the trust is created and the policy is transferred or purchased by the trust, the grantor gives up ownership rights over the policy and cannot unilaterally change the terms. This structure can prevent policy proceeds from being included in the grantor’s estate for estate tax purposes if timing and funding rules are followed. An ILIT typically names trustees to manage premiums and distribute proceeds according to the trust terms, and it is often coordinated with a pour-over will, durable financial power of attorney, and advance health care directive.
Proper implementation requires attention to the three-year rule, gift tax considerations, and Crummey notice requirements when contributions are used to pay premiums. The trust document should be drafted to provide clear trustee powers, distribution standards, and successor trustee provisions so administration is efficient and consistent with the grantor’s objectives. Funding the trust may involve transferring an existing policy or having the trust apply for new coverage, and trustees must manage premium payments and recordkeeping. Thoughtful ongoing administration and communication with trustees and beneficiaries help preserve the intended benefits of the ILIT over time.
An Irrevocable Life Insurance Trust is a legal arrangement in which a trust, rather than an individual, owns a life insurance policy. The grantor transfers policy ownership or has the trust purchase the policy; the insurance proceeds are then paid to the trust upon the insured’s death and distributed to beneficiaries according to trust terms. Because the grantor no longer owns the policy, those proceeds may not be included in the grantor’s taxable estate if the transfer complies with timing and tax rules. The trust also sets rules for use of funds, which can include paying estate taxes, supporting beneficiaries, or directing gifts to charitable purposes.
Creating an ILIT typically involves drafting the trust agreement, selecting a trustee, transferring or issuing the policy in the trust’s name, and establishing mechanisms for premium payments. Important elements include clear trustee powers to manage investments and make distributions, beneficiary designations aligned with trust terms, and Crummey withdrawal rights if gifts are used to fund premiums so gift tax exclusions may apply. The grantor must also ensure proper coordination with other estate planning documents and federal and state tax considerations. After funding, trustees must keep accurate records and follow the trust’s direction when proceeds are distributed upon the insured’s death.
Understanding the language used in ILIT planning helps you evaluate options and communicate clearly with trustees and advisors. Common terms include grantor, trustee, beneficiary, Crummey power, three-year rule, estate inclusion, and premium funding. Each concept impacts how the trust functions, the tax consequences, and the rights of involved parties. Knowing these basics ensures more informed decisions when selecting trustees, funding policies, and drafting distribution provisions. Clear definitions also reduce misunderstandings and help families plan for liquidity needs, taxes, and long-term wealth transfer in a manner consistent with California law.
An Irrevocable Life Insurance Trust is a trust that owns one or more life insurance policies and receives policy proceeds when the insured dies. The grantor gives up ownership rights so policy proceeds may avoid estate inclusion, subject to timing and tax rules. The trust’s terms govern how proceeds are invested or distributed to beneficiaries. Trustees manage premiums and administration, and the trust may include provisions for Crummey notices when gifts are made to pay premiums. ILITs are commonly used to provide liquidity to pay estate taxes or other obligations while controlling long-term distribution to heirs.
The grantor is the person who creates and funds the trust. In ILIT planning, the grantor typically transfers an existing policy or makes gifts to the ILIT to pay premiums. How a trust is treated for tax purposes depends on whether the grantor retains certain powers or interests; in most ILITs the goal is to avoid grantor inclusion of the policy proceeds in the grantor’s estate. Careful drafting determines whether contributions qualify for gift tax exclusions and whether any retained rights might pull the policy proceeds back into the estate under federal tax rules.
A Crummey power gives beneficiaries a temporary right to withdraw a gift made to the trust, which can allow that gift to qualify for the annual gift tax exclusion. When used for ILIT premium funding, trustees provide timely notice to beneficiaries, who then have a short window to exercise the withdrawal right. Most beneficiaries do not exercise the right, allowing the funds to remain in the trust to pay insurance premiums. Proper notice procedures and documentation are essential to support the tax treatment of these contributions under the IRS rules.
Estate inclusion refers to the potential for life insurance proceeds to be included in the insured’s taxable estate if the insured retained incidents of ownership or transferred the policy within three years of death. The three-year rule generally brings policies back into the estate for estate tax purposes if the transfer occurs less than three years before death. Planning around this rule involves timing transfers early enough and avoiding retained ownership powers that could negate the intended estate tax benefits. Careful coordination with other estate planning tools is required to reduce the risk of unintended inclusion.
An ILIT is one of several ways to handle life insurance and estate liquidity needs. Alternatives include keeping a policy in the individual’s name with beneficiary designations, funding a revocable living trust, or using payable-on-death accounts to provide immediate liquidity. Each option has trade-offs: direct ownership may be simpler but can expose proceeds to estate inclusion, while ILITs provide control and potential tax benefits but require irrevocability and ongoing administration. Choosing between these approaches depends on family goals, estate size, desire for control over distributions, and the willingness to accept trust administration responsibilities.
When estate values are modest and life insurance is used primarily for short-term liquidity or to replace lost income, a straightforward policy with designated beneficiaries may be sufficient. In such cases, the costs and administration required by an ILIT may outweigh the potential benefits, particularly if estate inclusion will not create tax liability. Families with straightforward distribution wishes and cooperative beneficiaries often find that keeping a policy in the insured’s name, combined with a clear will and powers of attorney, accomplishes their objectives without irrevocable trust administration responsibilities.
If the expected estate value remains below federal and state exclusion thresholds and there are no complex creditor or long-term protection concerns, the urgency for an ILIT diminishes. In such situations, families may prefer to maintain flexibility through revocable documents and beneficiary designations, while using straightforward estate administration tools to handle distributions. The decision should still consider potential future changes in asset values and family circumstances, and it may make sense to revisit the plan periodically to ensure it remains aligned with your goals and potential legislative changes.
For individuals with substantial estates, business interests, or multiple beneficiaries with competing needs, a comprehensive approach reduces the risk of unintended tax consequences, family conflict, or probate delays. Integrating an ILIT with revocable trusts, gifting strategies, retirement account beneficiary designations, and powers of attorney ensures that life insurance proceeds are used as intended and that liquidity is available to meet estate obligations. This coordination helps prevent last-minute decisions and clarifies roles for trustees and fiduciaries during an already stressful time for surviving family members.
When beneficiaries include minors, individuals with health needs, or family members who may require long-term support, an ILIT integrated with other trust vehicles can provide tailored distributions and protections. Trust provisions can include standards for distributions, provisions to prevent misuse of funds, and coordination with special needs planning to preserve public benefits. A comprehensive plan also addresses successor trustee selection, guidance for fiduciaries, and contingency planning so that the insurance proceeds support intended long-term outcomes without unintended consequences for vulnerable beneficiaries.
A comprehensive approach that includes an ILIT alongside wills, revocable trusts, and durable powers of attorney creates a cohesive plan for asset transfer, liquidity, and long-term stewardship. By coordinating beneficiary designations and funding mechanisms, families reduce the risk that policy proceeds will be delayed by probate or unintentionally increase estate tax exposure. Clear instructions for trustees, backup trustees, and distribution standards make administration smoother and reduce the administrative burden on surviving family members during emotionally difficult times.
Beyond tax and administrative advantages, comprehensive planning helps preserve family harmony by setting expectations and providing an impartial mechanism for managing insurance proceeds. The structure can provide financial stability for surviving spouses, support education for children, fund trusts for special needs, or fund charitable legacies. Regular review and updates ensure the plan adapts to life changes such as new children, changes in asset values, or revisions to retirement designations, preserving alignment between your goals and the legal documents that implement them.
An ILIT can provide immediate liquidity to pay estate taxes, debts, and administrative expenses without forcing the sale of business interests or real property. By placing a policy outside the taxable estate, qualified ILITs may reduce estate tax exposure and preserve family wealth for intended uses. This planning is particularly valuable for estates with illiquid assets where insurance proceeds can prevent rushed or disadvantageous asset sales. Properly drafted trust terms and timely transfers are necessary to realize these potential benefits, and ongoing administration helps ensure the intended outcomes at the time of the insured’s passing.
A trust structure allows the grantor to set conditions, schedules, or standards for distributions so proceeds are used for intended purposes such as education, healthcare, or ongoing support. Trustee discretion can be tailored to balance flexibility with protection, and successor trustee provisions ensure continuity of management. This control supports long-term wealth preservation, helps mitigate family disputes, and provides a documented approach for trustees to follow when making decisions. Clear, well-drafted instructions minimize ambiguity and help trustees act confidently in the beneficiaries’ best interests.
Begin ILIT discussions early to allow proper timing for transfers and to avoid the three-year inclusion rule. Starting early also gives time to coordinate beneficiary designations, retirement account planning, and revocable trust provisions so the entire estate plan works together. Early planning reduces the risk of last-minute errors, ensures premium funding strategies are in place, and helps families select trustees who understand their duties. Regular reviews are recommended to adjust the plan for life changes such as marriages, births, changes in asset values, or new tax laws.
Select trustees who are willing to serve and have the temperament to manage fiduciary duties, make impartial decisions, and communicate with beneficiaries. Consider naming successor trustees in case the initial trustee is unavailable, and include guidance for trustee compensation, decision-making processes, and recordkeeping expectations. Trustees should understand premium payment obligations, tax filing responsibilities, and the distribution standards in the trust. Thoughtful trustee selection reduces administration friction and increases the likelihood that trust proceeds will be managed in line with your goals.
Consider an ILIT when you want to remove life insurance proceeds from your taxable estate, provide structured distributions for heirs, or preserve liquidity for estate obligations. Families who own significant life insurance, business interests, or illiquid assets often benefit from the protection and control an ILIT can provide. The trust structure also helps avoid probate delays for insurance proceeds and provides a trustee-managed solution that reduces the administrative burden on surviving family members. Well-planned ILITs work alongside other estate planning documents to form a cohesive legacy plan.
An ILIT can be particularly helpful when beneficiaries may need oversight or when there is a desire to support charitable goals in a controlled manner. It is also useful where state or federal estate tax exposure could otherwise force asset sales to satisfy obligations. Families concerned about protecting proceeds from creditors or future litigation may also find that a properly drafted ILIT provides an additional layer of protection. Ultimately, the decision should weigh administrative responsibilities against the potential benefits for tax, control, and long-term family planning objectives.
People commonly establish ILITs when they hold large life insurance policies, own businesses needing liquidity at death, want to provide for minors or beneficiaries with special needs, or wish to ensure charitable gifts are funded. ILITs also help families manage succession planning and protect proceeds from creditor claims in some situations. The trust format offers a structured method for trustees to handle proceeds, pay expenses, and follow distribution instructions so the insured’s objectives are met without immediate probate involvement or risk of unintended estate inclusion.
When life insurance proceeds are large relative to the overall estate, placing the policy in an ILIT can prevent those proceeds from increasing estate tax exposure. This is often relevant for business owners, families with multiple properties, or those who purchase sizable coverage for estate liquidity. The ILIT provides a mechanism to hold and distribute proceeds according to specific terms, preserve long-term wealth, and reduce the need to sell assets to pay taxes or debts. Timing and proper transfer procedures are essential to achieve the intended benefits.
Families who want to control how proceeds are distributed, such as providing support for education, health care, or staged distributions to beneficiaries, often use an ILIT. Trust provisions can set standards for when and how funds are released, require trustees to consider specific needs, and protect assets from misuse. This approach helps ensure that proceeds are used for intended purposes and gives trustees a legal framework to manage funds responsibly over time, particularly when beneficiaries are young or require long-term financial oversight.
An ILIT can be tailored to provide for beneficiaries with health needs or conditions that could affect eligibility for government benefits. By directing distributions through a trust with carefully drafted terms, families can preserve access to public programs while still providing supplemental support. Trust provisions can also address long-term care planning, supervised distributions, and standards for discretionary spending so trust funds supplement rather than supplant essential benefits. This planning requires careful drafting to align with benefit rules and family objectives.
The Law Offices of Robert P. Bergman serves Lafayette and nearby Contra Costa County communities with practical estate planning solutions, including ILIT formation and administration guidance. We assist clients with drafting trust documents, funding strategies, beneficiary coordination, and trustee support so families can implement plans tailored to their circumstances. Our approach emphasizes clarity, compliance with California law, and proactive communication with trustees, beneficiaries, and financial institutions. Whether you are updating an existing plan or starting an ILIT, we provide steady guidance through each step of the process.
Choosing the right legal guidance for ILIT planning means working with a firm that understands California trust laws and local probate practices. Our office provides practical document drafting, careful review of transfer and funding strategies, and thorough coordination with other estate planning instruments. We focus on clear communication so clients understand the implications of irrevocable arrangements, the role of trustees, and the steps needed to maintain the trust. Our process aims to minimize surprises and make it easier for families to manage trust administration when the time comes.
We help clients evaluate whether an ILIT aligns with their goals and walk through alternative strategies when appropriate. Decisions such as transferring an existing policy, funding premiums, or creating new coverage for the trust require detailed review of policy terms, beneficiary designations, and tax considerations. We assist with drafting clear trust provisions, preparing Crummey notices if needed, and advising trustees on recordkeeping and premium payments. Our goal is to provide a durable legal structure that reflects client priorities and simplifies administration for successor fiduciaries.
Beyond initial drafting, we support clients with periodic plan reviews to update documents for life changes, new assets, or changed family dynamics. We also coordinate with financial advisors, insurance agents, and tax advisors when needed to implement funding strategies and ensure the ILIT functions as intended. By anticipating administrative needs and explaining trustee responsibilities, our firm helps families transition smoothly and preserves the intended use of policy proceeds for beneficiaries and long-term goals.
Our process for ILIT matters begins with a focused intake to understand your family, policy ownership, and planning goals. We review existing estate documents, life insurance policies, and beneficiary designations to identify coordination needs and potential tax implications. Next we draft the trust document tailored to your objectives, prepare funding and transfer paperwork, and provide guidance on premium payment methods and beneficiary notices. We also offer trustee guidance and ongoing administrative support so the trust continues to operate as intended over time and trustees have clear instructions when administering the trust.
The first step is a thorough consultation to discuss the client’s goals and review existing estate planning documents and life insurance policies. We collect information about asset values, intended beneficiaries, and any special needs among heirs. This review determines whether transferring an existing policy into an ILIT or having the trust acquire new coverage is the best path. We also assess timing concerns such as the three-year rule and potential gift tax implications. Clear communication during this stage sets expectations about process, costs, and administrative responsibilities.
We request copies of life insurance policies, beneficiary forms, trusts, wills, and records of retirement accounts to form a full picture of your estate plan. Reviewing these documents helps identify conflicts, outdated beneficiary designations, or policies that may be better owned by the trust. Gathering complete, accurate information at the outset reduces the need for revisions later and allows us to recommend efficient funding and administration strategies. This step also helps determine whether beneficiary coordination or document updates are necessary.
We evaluate whether an existing policy should be transferred to the ILIT or whether the trust should acquire a new policy, considering tax timing, premium obligations, and policy terms. Our guidance includes options for making gifts to the trust to fund premiums, setting up Crummey notices, and planning for contingency funding should premiums increase. Timing is reviewed carefully to reduce the risk of estate inclusion under the three-year rule and to ensure that the trust’s administration aligns with your broader estate planning timeline.
After determining strategy, we prepare the ILIT document and supporting paperwork required to transfer or purchase the life insurance policy. The trust agreement will include trustee powers, beneficiary designations, distribution standards, and provisions for notices and administration. We also prepare any necessary assignment forms, policy change paperwork, and gift documentation if funds are used to pay premiums. Clear drafting at this stage lays the groundwork for straightforward administration and helps ensure the trust functions according to your intentions.
The trust document is tailored to your goals and includes successor trustee provisions, distribution standards, and instructions for managing the policy and proceeds. We prepare assignments or transfer forms required by the insurer to change policy ownership to the trust and confirm acceptance by the insurance company. The trust must be carefully reviewed to ensure no retained powers create estate inclusion risk. Proper documentation and insurer acknowledgment are key to preserving the ILIT’s intended tax and control benefits.
We establish procedures for delivering Crummey notices when annual gifts are made to fund premiums and advise trustees on recordkeeping practices to document notices, gifts, and premium payments. Maintaining accurate records helps support tax positions and provides clarity for beneficiaries. We also recommend best practices for trustee communications, location of trust documents, and coordination with financial and insurance professionals so the trust’s administration remains organized and defensible over time.
Once the trust is established and the policy is in the trust’s name, ongoing administration includes premium payments, recordkeeping, and periodic reviews to ensure the plan remains aligned with your objectives. Trustees must follow the trust terms when making distributions and keep beneficiaries informed as required. We recommend periodic reviews to address changes in family circumstances, policy performance, or tax law updates. Proactive maintenance helps preserve the ILIT’s benefits and reduces the likelihood of disputes or administrative delays when benefits become payable.
Trustees should keep accurate records of premium payments, notices to beneficiaries, and any investment or distribution decisions. Clear documentation supports the trust’s tax treatment and provides a transparent administrative trail for beneficiaries and fiduciaries. Trustees must also monitor policy performance and be prepared to evaluate replacement or policy changes if needed. Guidance on these responsibilities reduces the risk of errors and helps trustees manage the trust consistent with the grantor’s documented intentions.
Regular reviews are recommended to confirm the ILIT still aligns with estate goals and to address changes in life circumstances, tax laws, or policy performance. Reviews allow for adjustments to funding strategies, trustee guidance, or coordination with other planning documents. Keeping documents current reduces uncertainty for beneficiaries and ensures that the trust continues to meet its intended objectives. Periodic meetings also help clarify expectations and prepare trustees for future administration tasks.
An Irrevocable Life Insurance Trust is a trust that owns a life insurance policy so the policy proceeds pass to the trust rather than directly to beneficiaries. The grantor transfers ownership of the policy or has the trust purchase the policy, and the trust document sets rules for how proceeds are distributed. Because the grantor gives up ownership, the proceeds may be excluded from the grantor’s taxable estate if the transfer and timing rules are followed. The trust is administered by a trustee who manages premium payments and distributions according to the trust terms. Implementation includes drafting the trust, transferring the policy, and ensuring funding mechanisms are in place to pay premiums. Trustees must maintain records, issue required beneficiary notices if gifts are used to fund premiums, and follow distribution standards on the date benefits become payable. Coordination with other estate planning documents, such as wills and powers of attorney, helps ensure a coherent plan that reflects the grantor’s objectives and provides clarity for trustees and beneficiaries.
An ILIT can reduce estate taxes by removing life insurance proceeds from the grantor’s taxable estate when the transfer is made properly and outside certain lookback periods. If the grantor retains ownership rights or transfers the policy within three years of death, the proceeds may be included in the estate. Properly executed transfers and compliance with timing rules are essential to achieve the intended tax benefits, and gift tax implications must also be considered if annual gifts are used to fund premiums. Estate tax results depend on individual circumstances, including total estate value, recent transfers, and applicable federal and state exemptions. Because tax laws can change and personal circumstances vary, periodic review of the plan is recommended. Coordination with tax and financial advisors may be helpful to confirm calculations, gift strategies, and the interaction between the ILIT and other estate planning vehicles to ensure the plan meets long-term goals.
Funding an ILIT with annual gifts typically involves making gifts to the trust that trustees then use to pay policy premiums. To allow those gifts to qualify for the annual gift tax exclusion, trustees issue Crummey notices to beneficiaries, granting them a temporary right to withdraw the gifted amount. Beneficiaries rarely exercise the withdrawal right; the result is that funds remain in the trust to cover premiums while benefiting from gift tax exclusion treatment. Accurate notice delivery and recordkeeping are important to support the tax treatment of these gifts, and trustees should keep documentation showing notices were provided and whether withdrawal rights were exercised. The trust document should specify notice procedures and withdrawal windows so both trustees and beneficiaries understand their rights and responsibilities. Maintaining consistent administrative practices helps preserve the intended tax advantages over time.
An ILIT can offer a degree of protection from creditors for the life insurance proceeds after they are paid into the trust, depending on trust terms and applicable state law. Because the trust owns the policy and controls distributions, beneficiaries do not receive proceeds directly at death unless the trust directs distributions to them, which can limit immediate exposure to creditor claims. However, protections vary based on the timing of transfers, the type of creditor claims, and the jurisdiction’s trust and bankruptcy laws. While an ILIT is a useful planning tool, it should not be viewed as an absolute shield against all creditor claims or divorce proceedings. Careful drafting and timing are important, and in some circumstances, transfers close to anticipated claims may be subject to challenge. Consulting with legal counsel about creditor and family law risks helps set realistic expectations and supports a plan that balances protection, tax planning, and fairness to beneficiaries.
A trustee should be someone you trust to act impartially and manage fiduciary duties, such as a reliable family member, a trusted friend, or a professional fiduciary. Trustees need the temperament to communicate with beneficiaries, make discretionary decisions according to trust terms, and maintain careful records of premium payments and notices. Naming successor trustees provides continuity in case the initial trustee becomes unavailable, and the trust should include guidance on trustee compensation and decision-making authority. Trustee responsibilities include administering the policy, paying premiums from trust funds, issuing required notices, keeping accurate records, filing any necessary tax returns, and distributing proceeds according to the trust’s terms. Trustees may also be responsible for making investment or management decisions for trust assets and for coordinating with advisors. Clear instructions in the trust document reduce ambiguity and help trustees fulfill their duties confidently.
The three-year rule generally brings life insurance proceeds back into the decedent’s estate for estate tax purposes if the policy transfer to the ILIT occurred within three years of the transferor’s death. This rule is intended to prevent transfers made shortly before death from being used to avoid estate inclusion. Proper timing is therefore a critical planning consideration; transferring policies earlier helps avoid the lookback period and the risk of estate inclusion under this rule. If you are considering transferring a policy and are within a short timeframe, it is important to evaluate alternatives and consider potential exceptions. Planning early reduces complications and increases the likelihood that the ILIT will produce the intended estate planning and tax benefits. Coordination with advisors can help assess timing and related implications for gift and estate taxes.
An ILIT typically operates alongside a revocable living trust or will rather than replacing them. While the ILIT specifically handles life insurance ownership and proceeds, a revocable trust or will addresses distribution of other assets, guardianship nominations for minor children, and successor fiduciary appointments. Coordination ensures beneficiary designations and pour-over provisions align so assets are distributed consistently with your overall estate plan. The ILIT’s provisions should be reviewed together with wills and trusts to avoid conflicting instructions. Pour-over wills can direct remaining probate assets into a living trust, while the ILIT holds insurance separately and distributes according to its own terms. Regular reviews and updates ensure that changes to one document do not create unintended outcomes elsewhere. Clear cross-references and consistent beneficiary designations help create a cohesive estate plan that functions as intended at the time of the grantor’s death.
If a beneficiary receives a Crummey notice and chooses to exercise the temporary withdrawal right, they may withdraw the gifted amount within the notice period. Most beneficiaries do not exercise this right, allowing the funds to remain in the trust to pay premiums. The trust document and notice procedures should describe the withdrawal window and how withdrawals will be handled, which helps both trustees and beneficiaries understand the process and consequences of exercising the right. Trustees should document all notices and any withdrawals to support the annual gift exclusion and tax positions. If a withdrawal is exercised, trustees must coordinate premium payments and determine whether alternative funding is needed to keep the policy in force. Clear procedures and consistent recordkeeping reduce administrative uncertainty and help maintain compliance with tax rules.
An ILIT can be funded with either an existing policy transferred into the trust or by having the trust purchase a new policy. Transferring an existing policy requires insurer consent and careful attention to the three-year rule and any retained ownership issues. If the transfer occurs less than three years before the insured’s death, proceeds may be included in the estate. Purchasing a new policy in the trust’s name avoids transfer timing concerns but requires underwriting and may have different premium costs or coverage options. Deciding whether to transfer an existing policy or purchase a new one depends on policy terms, health of the insured, cost considerations, and timing. We review policy contracts and insurer requirements to determine the practical steps and recommend the path that aligns with your planning goals and administrative capacity. Coordination with insurance providers ensures ownership and beneficiary designations are updated correctly.
Review ILIT documents and related estate planning documents periodically, typically every few years or after major life events such as births, deaths, marriages, divorces, or significant changes in assets. Policy performance, changes in tax laws, or updates in family circumstances can all warrant revisiting the trust terms, funding strategies, and trustee designations. Regular reviews help keep the plan aligned with current goals and reduce surprises for trustees or beneficiaries at the time of administration. Periodic meetings also provide an opportunity to ensure premium funding strategies remain feasible and that trustees are prepared to administer the trust. Updating contact information for trustees, beneficiaries, and insurance agents and confirming insurer records reflect trust ownership are practical steps to maintain the trust’s effectiveness over time.
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