An irrevocable life insurance trust, commonly called an ILIT, is a durable estate planning tool used to hold life insurance policies outside of an individual’s taxable estate. For residents of El Dorado Hills and surrounding areas, establishing an ILIT can provide liquidity to pay estate expenses, protect proceeds from creditor claims, and preserve family wealth for intended beneficiaries. At the Law Offices of Robert P. Bergman, we prepare tailored trust documents and coordinate funding steps so the trust operates as intended. This page explains how an ILIT works and the practical steps needed to create and fund one in California.
Creating an ILIT involves careful coordination among policy ownership transfers, annual gifting, and trustee selection to ensure estate planning goals are achieved. The trust is designed to remove life insurance proceeds from the grantor’s estate for estate tax and probate purposes while giving the grantor and beneficiaries predictable access to the benefit. Many families use an ILIT to provide for surviving partners, cover estate settlement costs, or support minor or vulnerable beneficiaries through structured distributions. The process combines legal drafting, communication with insurers, and ongoing administration to keep the trust functioning smoothly.
An ILIT matters because it can keep life insurance proceeds out of the taxable estate, offer a level of protection from creditor claims, and create a clear mechanism for distributing insurance benefits according to the grantor’s wishes. By placing a policy into a trust, the proceeds are paid to the trust and then distributed under terms the grantor selects, which can include staged payments, trusts for minors, or funds held for long-term care and education. Properly implemented, an ILIT provides predictability at a time when beneficiaries need immediate access to liquidity and may reduce the administrative burden on estate representatives.
The Law Offices of Robert P. Bergman, based in San Jose and serving clients across California including El Dorado Hills, focuses on comprehensive estate planning documents such as revocable living trusts, last wills, powers of attorney, and irrevocable life insurance trusts. Our approach emphasizes clear communication, careful drafting, and practical administration guidance to ensure clients’ plans work when they are needed most. We assist with funding steps, prepare supporting documents like certification of trust and pour-over wills, and advise on how ILITs coordinate with retirement plan trusts, special needs trusts, and pet trusts to reflect family priorities.
An ILIT is a separate legal entity that becomes the owner and beneficiary of a life insurance policy once the grantor transfers the policy into the trust. Because the trust is irrevocable, the grantor generally gives up direct control over the policy and its cash value, but gains the benefit of having the insurance proceeds distributed according to the trust terms. A trustee, chosen by the grantor, manages the trust, receives policy proceeds upon the insured’s death, and follows the distribution instructions. Careful timing, drafting, and funding practices are essential to achieve the intended estate and tax outcomes under state and federal law.
Funding an ILIT typically involves transferring ownership of an existing policy or directing new premium gifts into the trust so the trustee can keep the policy active. Grantors often use annual exclusion gifts to provide the trustee with funds to pay premiums and rely on notice requirements to make those gifts qualify for the exclusion. Because the trust must be properly drafted and administered, coordination with insurance carriers and consistent recordkeeping are necessary. The ILIT must also be considered alongside other planning documents like a pour-over will, powers of attorney, and any guardianship nominations to preserve overall goals.
An irrevocable life insurance trust is a legal arrangement under which a grantor creates a trust and transfers ownership of a life insurance policy to that trust. The trust document names a trustee and beneficiaries and sets the terms for how proceeds will be managed and distributed after the insured’s death. Because the trust is irrevocable, the assets it holds are generally not included in the grantor’s estate for estate tax purposes, provided appropriate timing and transfer rules are followed. The outcome is greater control over proceeds and potential reduction in probate exposure when the trust is properly maintained.
Key elements of an ILIT include a well-drafted trust document, the selection of a trustee, a plan for funding premiums, and coordination with life insurance carriers to transfer policy ownership. Processes include drafting trust language tailored to beneficiary needs, executing assignments of ownership, delivering required notices when gifts are made, and documenting premium payments and trustee actions. Ongoing administration includes recordkeeping, tax filings if necessary, and timely communications with beneficiaries. Thoughtful planning at each step helps ensure the trust functions as intended and aligns with the broader estate plan.
The following glossary entries explain commonly used terms in ILIT planning so clients can make informed choices. Understanding terms such as grantor, trustee, gift tax annual exclusion, and Crummey withdrawal rights helps clarify how funding works and what actions are required to preserve favorable treatment. Reviewing these definitions will make conversations about drafting, funding, and administering an ILIT clearer and more productive when working with legal counsel, financial advisors, and insurance carriers.
The grantor, sometimes called the settlor, is the person who creates the trust and transfers assets into it. In the ILIT context, the grantor typically transfers ownership of a life insurance policy or gifts money to the trust to pay premiums. By creating an irrevocable trust, the grantor usually gives up direct control over the transferred assets, although the trust can include carefully drafted provisions to reflect permitted uses and distributions. The grantor’s actions, including timing of transfers and notices to beneficiaries, affect tax and estate outcomes, so thoughtful planning is recommended.
Irrevocability refers to the characteristic of a trust that generally prevents the grantor from unilaterally reclaiming assets or changing key trust terms after the trust has been properly funded and executed. For an ILIT, this means the policy and premium gifts are removed from the grantor’s estate for many purposes, subject to timing and legal requirements. Irrevocability provides stability in planning but also means that decisions about funding, trustee selection, and beneficiary designations should be made with careful consideration of long-term goals and family circumstances.
The trustee is the individual or entity appointed to hold and manage trust property, follow the trust’s terms, and act in the best interests of the beneficiaries. In an ILIT, the trustee receives premium payments from gifts the grantor makes, ensures the policy remains in force, accepts death benefit proceeds, and makes distributions according to the trust document. A trustee’s responsibilities include maintaining accurate records, filing required tax forms, communicating with beneficiaries, and coordinating with insurance companies. Choosing someone who is dependable and organized is important for smooth administration.
A Crummey withdrawal right is a short period during which beneficiaries of an ILIT have the right to withdraw gifts made to the trust, typically used to qualify gifts for the annual gift tax exclusion. The grantor provides notice to beneficiaries that a gift has been made and that they have a limited opportunity to withdraw a portion of it. In practice, beneficiaries almost always waive the withdrawal so the trustee can use the funds to pay premiums. Proper documentation of notices and recordkeeping helps support the intended tax treatment of annual premium gifts.
When evaluating an ILIT versus naming beneficiaries directly or using a revocable living trust, key differences include estate inclusion, creditor exposure, and control over distributions. Naming beneficiaries directly is simple but may leave the proceeds subject to the insured’s estate or to creditors. A revocable living trust can provide control but does not shield assets from estate inclusion while the grantor is alive. An ILIT aims to remove the policy from the taxable estate and provide directed management of proceeds, but it requires an irrevocable transfer and ongoing administration to maintain its intended benefits.
A limited approach to life insurance planning may be sufficient when policy values are modest and beneficiary designations are straightforward. If the total life insurance proceeds are unlikely to push an estate into higher estate tax exposure and beneficiaries are adults capable of managing funds, a direct beneficiary designation or a revocable trust might meet the family’s needs with less administrative complexity. In such scenarios, the simplicity and lower cost of naming beneficiaries directly may outweigh the benefits of creating an irrevocable trust, though consultation regarding state-specific rules and potential creditor issues remains important.
If the overall estate is small relative to federal and state exemption thresholds and there are no significant creditor or long-term care concerns, a limited planning approach can be reasonable. Families with straightforward assets, clear heirs, and minimal need for staged distributions may prefer streamlined documentation and fewer administrative duties. However, it is important to periodically review this choice because changes in asset values, family circumstances, or tax rules can alter the suitability of a simple arrangement over time, so periodic reassessment is recommended.
When life insurance proceeds are substantial relative to the size of an estate, a comprehensive trust-based plan can protect those proceeds from inclusion in estate calculations and reduce potential estate tax exposure. An ILIT helps remove the policy from the grantor’s estate if transfers are completed and timed correctly. For families concerned about preserving wealth across generations, ensuring liquidity for estate settlement, or preventing unintended distributions to creditors, the added structure of an ILIT combined with other trusts can provide stability and predictable outcomes.
Complex family dynamics such as blended families, minor children, beneficiaries with special needs, or concerns about spendthrift protection often call for trust-based planning. An ILIT allows the grantor to specify distribution timing, conditions, and protections that align with long-term goals. When beneficiaries may need oversight or protection from creditors, or when the grantor wishes to direct how funds are used over time, a comprehensive approach provides flexibility and control. Properly tailored trust language and trustee guidance are essential to implement those protections effectively.
A comprehensive trust-based approach to life insurance planning can deliver several advantages, including preserving insurance proceeds for intended beneficiaries, avoiding probate, and reducing the risk of estate inclusion for tax purposes. It also allows for tailored distribution provisions such as staged payouts, funds for education, or support for a surviving spouse while protecting assets from certain creditor claims. Coordinating an ILIT with other estate planning documents like a pour-over will, powers of attorney, and health care directives ensures an integrated plan that reflects the grantor’s priorities and family circumstances across multiple contingencies.
In addition to tax and probate considerations, a comprehensive plan provides administrative clarity at a difficult time. A designated trustee follows specified instructions, ensuring that proceeds are used as intended rather than being distributed outright where they may be exposed to mismanagement or external claims. The plan can also provide for successor trustees and clear recordkeeping protocols, which simplifies trust administration and reduces disputes among beneficiaries. For many families, this predictability and structure are among the most valuable aspects of a trust-based approach.
Placing a policy into an ILIT can, when properly executed and timed, keep the death benefit out of the grantor’s estate for estate tax purposes and limit exposure to certain creditor claims. This protection provides greater assurance that proceeds will pass to intended beneficiaries rather than being reduced by taxes or estate administration costs. The trust structure can also include spendthrift provisions and specific directives for how the trustee should handle claims or creditor requests, offering an additional layer of protection for family assets and the legacy the grantor intends to leave.
A comprehensive ILIT enables the grantor to control how life insurance benefits are distributed and managed over time, which is especially helpful when beneficiaries are minors, have special needs, or require oversight. Trustee-directed distributions can be conditioned on milestones, used to fund education, or structured as regular payments to provide steady support. Ongoing management by a trustee with clear trust provisions helps preserve assets for long-term needs and reduces the likelihood of disputes among heirs by documenting the grantor’s intent and providing a practical roadmap for administration.
Consistent funding and careful documentation are essential to maintaining the benefits of an ILIT. Use annual gift transfers to the trust and keep clear records of each premium payment and any beneficiary notices provided. Proper documentation supports the intended gift tax treatment and ensures the trustee has the funds needed to keep the policy in force. Regular reviews, particularly after changes in policy costs or family circumstances, help identify adjustments that may be needed to maintain coverage and trust objectives over time.
Coordination between the ILIT, beneficiary designations, revocable living trusts, and insurance carriers is essential. Ensure ownership changes are properly recorded with the insurer and that beneficiary designations reflect the trust as owner and/or beneficiary where intended. Review related documents such as powers of attorney, health care directives, certification of trust, and pour-over wills so the ILIT fits into the broader estate plan. This coordination prevents unintended consequences and helps achieve a seamless transition when the plan is put into action.
Families and individuals consider an ILIT when they want to preserve life insurance proceeds for beneficiaries, provide liquidity for estate settlement, or protect proceeds from potential claims. An ILIT can be especially helpful where the grantor desires controlled distributions, needs to provide for minor or vulnerable beneficiaries, or seeks to reduce the likelihood that insurance benefits will become subject to probate or estate taxes. The trust structure provides a formal mechanism to translate estate planning goals into clear, enforceable instructions for trustees and beneficiaries.
Other reasons to consider an ILIT include managing the timing of payouts, coordinating benefits with other trusts and retirement planning, and minimizing administrative burdens for surviving family members. When life insurance is a significant portion of total estate value, careful planning is beneficial to preserve value and maintain family intentions. Consulting with an attorney familiar with California trust practice and insurance coordination can clarify whether an ILIT is the right fit and how to implement it in a way that aligns with the broader estate plan.
Typical circumstances that lead families to consider an ILIT include large life insurance policies relative to overall estate size, blended family situations where distribution control is important, minor or special needs beneficiaries who require protection, and concerns about estate taxes or creditor claims. An ILIT can be used to provide immediate liquidity for estate settlement, preserve assets for future generations, or ensure funds are available for specific purposes such as education or long-term care needs. Each situation calls for tailored drafting and administration to reflect family priorities.
When life insurance proceeds are sizeable enough to potentially affect estate tax calculations, an ILIT can be part of a mitigation strategy to keep those proceeds outside the taxable estate when transfers are properly timed and executed. This approach helps preserve the net value of the policy for beneficiaries and can reduce the overall tax burden on an estate. It is important to consider current federal and state exemption amounts and to coordinate the ILIT with other planning to maximize the intended benefits while remaining compliant with applicable rules.
Families with minor children or beneficiaries who may need financial oversight often use an ILIT to create a structured distribution plan. The trust can set conditions for distributions, provide for education expenses, and require the trustee to manage funds responsibly over time. These provisions reduce the risk that beneficiaries will receive large sums outright at emotionally difficult times and provide a legal mechanism to ensure funds are used for their intended purposes. Naming trusted successor trustees and including clear instructions is key to effective protection.
An ILIT can add a layer of protection against certain creditor claims, depending on the timing and structure of the transfer and applicable state law. By placing ownership of a life insurance policy in an irrevocable trust, the proceeds can be kept separate from the grantor’s personal assets, which may make it harder for creditors to reach those funds after the insured’s death. While no arrangement guarantees absolute protection against all claims, thoughtful trust drafting and administration can bolster the likelihood that proceeds will pass to beneficiaries as planned.
We serve clients in El Dorado Hills and throughout California with practical guidance on creating and administering irrevocable life insurance trusts and related estate planning documents. The Law Offices of Robert P. Bergman assists with policy transfers, funding strategies, trustee selection, and drafting trust provisions that reflect each family’s priorities. Our office also prepares supporting documents such as certification of trust, pour-over wills, powers of attorney, health care directives, and guardianship nominations to create a coordinated plan. Call 408-528-2827 to discuss your needs and arrange a consultation.
Clients value a practice that focuses on clear communication, practical drafting, and reliable administration guidance. The Law Offices of Robert P. Bergman work to translate complex legal and insurance issues into actionable plans that achieve clients’ objectives. From funding techniques to trustee duties and coordination with other estate documents, we aim to reduce uncertainty and help families implement plans that reflect their priorities and protect intended beneficiaries.
Our services include careful review of existing policies, assistance with transferring ownership, preparation of trust documents and notices, and coordination with insurance carriers to ensure designations and assignments are properly recorded. We also prepare related documents such as revocable living trusts, wills, powers of attorney, HIPAA authorizations, and guardianship nominations to create a cohesive estate plan that addresses both immediate and long-term needs.
We take a practical approach to ILIT administration, helping trustees with recordkeeping, premium payment logistics, beneficiary communications, and any filings that may be necessary. By focusing on thorough documentation and clear instructions, our goal is to minimize administrative strain on family members and preserve the intended value of life insurance proceeds for the people who matter most.
Our process begins with a thorough review of the client’s existing policies, financial picture, and goals for beneficiary distributions. We explain the practical implications of transferring ownership to a trust, draft the trust document with tailored distribution provisions, and coordinate the necessary funding and notices to implement the plan. After the trust is established, we provide guidance to trustees on administration duties and recordkeeping to preserve the intended outcomes and ease the transition when the trust becomes effective at the policyholder’s death.
The first step is an initial meeting to gather relevant information about life insurance policies, existing estate planning documents, family circumstances, and planning objectives. We review policy ownership, beneficiary designations, premium schedules, and potential tax implications. This information allows us to recommend whether an ILIT is appropriate and how it should be structured to align with the client’s overall estate plan, including any pour-over wills, revocable trusts, and related documents.
During the information-gathering phase, we request policy statements, beneficiary designations, copies of existing trusts and wills, and details about family relationships and long-term objectives. This comprehensive view helps identify potential gaps, coordinate planning with retirement accounts, and craft trust provisions that reflect specific needs such as support for minors or vulnerable beneficiaries. Accurate and complete information at this stage is essential to design a trust that operates as intended.
We discuss the client’s goals for distribution timing, protection from creditors, and potential estate tax concerns, as well as practical funding options such as annual gifts and premium payment strategies. Timing considerations are important because transfers into an ILIT can have implications for estate inclusion depending on when they occur. We explain the administrative steps the trustee will take and prepare clients for the ongoing responsibilities associated with the trust.
In the drafting stage we prepare a trust document that reflects the client’s distribution preferences, names trustees and successor trustees, and includes any special provisions needed for beneficiaries. We also coordinate the transfer of policy ownership with the insurance carrier and prepare any assignments, beneficiary designations, or notices required for the trust to assume ownership. Proper execution and clear communication with the carrier are necessary to avoid unintended inclusion of the policy in the grantor’s estate.
Drafting includes specifying trustee powers, distribution standards, and any spendthrift or protective provisions for beneficiaries. Trustee authorities may include the power to invest proceeds, make distributions for health and education, and handle tax filings. Clear language reduces ambiguity and helps trustees administer the trust consistently with the grantor’s intent. We also prepare certification of trust or similar documents trustees can present to financial institutions or insurers without disclosing sensitive trust details.
We communicate with insurance companies to complete ownership change forms, update beneficiary designations if appropriate, and confirm that the policy is properly recorded in the trust’s name. This coordination avoids administrative surprises and confirms that premium payment arrangements are understood. Detailed follow-up and confirmation help ensure the policy is in force under the trust and that future proceeds will be distributed under the trust terms as intended.
After the trust is established and funded, ongoing administration includes documenting gifts and premium payments, preparing any required notices to beneficiaries, maintaining records, and advising trustees on their duties. Periodic reviews ensure the trust continues to align with changes in family circumstances, insurance costs, and applicable laws. We provide guidance to trustees to make administration straightforward and to preserve the intended estate and tax benefits of the ILIT over time.
Trust administration duties include maintaining accurate records of all contributions, premium payments, communications with the insurer, and any notices provided to beneficiaries. Trustees should document decisions and keep beneficiaries informed about the trust’s status and distribution procedures. Sound recordkeeping supports tax reporting and helps resolve any questions that may arise, making the administration process more transparent and manageable for all parties involved.
Following the insured’s death, the trustee files the necessary claims with the insurance carrier, receives proceeds on behalf of the trust, and makes distributions according to the trust terms. The trustee may also be responsible for filing trust tax returns if required and coordinating with estate representatives and beneficiaries. Clear procedures in the trust document and proactive guidance during administration reduce confusion and help ensure that distributions occur efficiently and in accordance with the grantor’s instructions.
An irrevocable life insurance trust is a trust into which a life insurance policy is transferred or which owns a policy on the grantor’s life. Once the policy is placed in the trust, the trustee holds the policy and the trust becomes the owner and often the beneficiary, depending on the document. The trust terms specify how proceeds will be managed and distributed, and the trust is generally irrevocable so the policy and gifts are not controlled directly by the grantor. This structure is used to keep proceeds outside the grantor’s taxable estate when transfers are properly timed and documented. The mechanics involve drafting a trust, transferring policy ownership or naming the trust as owner and beneficiary, and funding the trust so the trustee can pay premiums. Beneficiaries receive distributions according to the trust terms when the insured dies, and the trustee manages claims and disbursements. Proper notice and recordkeeping for annual gifts help support favorable tax treatment. Coordination with the insurance carrier and clear trustee instructions are essential to ensure the trust operates as intended.
An ILIT can assist in reducing estate tax exposure by removing the life insurance policy from the grantor’s estate if the transfer is completed more than a specified period before death and all other requirements are met. When the trust owns the policy outright, and the trust is structured correctly, the death benefit is paid to the trust and not included in the grantor’s gross estate for estate tax purposes. This can preserve more of the insurance proceeds for beneficiaries instead of having those funds consumed by estate taxes or settlement costs. It is important to recognize limitations and timing considerations. Transfers close to the date of death may still be included in the estate under applicable rules, and state law or changes in tax rules may affect outcomes. An ILIT should be coordinated with other estate planning vehicles and reviewed periodically to ensure it remains effective in light of changes in wealth, family circumstances, or legislation.
Because an ILIT is irrevocable, it generally cannot be undone by the grantor once the trust is properly funded and in effect. This permanence is part of what allows the trust to achieve exclusion from the grantor’s estate in many cases. However, there are limited situations where modifications or alternative approaches may be available, such as through trust decanting, consent of beneficiaries, or court proceedings in certain jurisdictions. The availability and appropriateness of such measures depend on the trust language, state law, and the particular facts of the situation. Given the limited flexibility, careful drafting at the outset is essential. If circumstances change significantly, parties may consider options such as appointing a successor trustee who can adapt distributions within the trust’s terms, or creating supplemental planning with other vehicles. Regular reviews of the trust and related documents can help identify when amendments to the broader estate plan, rather than the ILIT itself, are needed to address new circumstances.
The trustee should be someone reliable, organized, and willing to carry out administrative duties such as paying premiums, maintaining records, communicating with insurers, and making distributions according to the trust terms. Many grantors choose a trusted family member, a close friend with financial acumen, or a corporate trustee for continuity and professional administration. Consider whether the trustee understands the grantor’s goals, is willing to serve long term, and can work impartially with beneficiaries when tensions arise. Other considerations include trustee compensation, the availability of successor trustees, and whether co-trustees or institutional trustees are appropriate for complex situations. For families with complicated assets or potential conflicts, an institutional trustee or a corporate fiduciary can provide consistent administration; for simpler cases, a family member who maintains good records and communicates well may be appropriate. Clear instructions in the trust and guidance about compensation can reduce disputes and administrative issues.
An ILIT is funded by transferring ownership of an existing policy to the trust or by gifting funds to the trust so the trustee can purchase or maintain a policy. To preserve favorable tax treatment for annual premium gifts, beneficiaries are often given a temporary right to withdraw gifts, commonly known as Crummey withdrawal rights, and are provided written notice when gifts are made. The withdrawal right is typically short-lived, and most beneficiaries waive it so the trustee can use the funds to pay premiums. Proper notices and careful recordkeeping are key to supporting the intended treatment of these gifts. Funding strategies vary depending on policy type and the grantor’s goals. Some grantors transfer existing policies and allow the trustee to manage the policy, while others create a new policy owned by the trust. Regular reviews of premium amounts and funding sources are important to ensure the policy remains in force and the trust has the resources to meet premium obligations without unintended tax consequences.
Life insurance proceeds paid to an ILIT generally bypass probate because the trust is the payee and the trustee receives and administers the funds according to the trust terms. This direct payment to the trust typically avoids the delays and public administration associated with probate and can make funds available more quickly to cover expenses or provide for beneficiaries. Probate avoidance can be a significant practical advantage, particularly where estate liquidity is a concern or when timely funds are needed for estate settlement obligations. While proceeds to an ILIT usually avoid probate, other issues can arise that affect distribution, such as disputes over trust interpretation, creditor claims, or whether transfers were properly documented. Maintaining good records, ensuring the insurer recognizes the trust as owner or beneficiary, and following trust administration procedures reduces the likelihood of disputes. Coordination with other estate planning documents and with the trustee at the outset streamlines the post-death process for beneficiaries.
An ILIT should be considered as part of a coordinated estate plan that includes a revocable living trust, wills, powers of attorney, and health care directives. A pour-over will can direct any assets not already placed in trust into a revocable trust at death, while an ILIT separately owns life insurance and functions under its own terms. It is important that beneficiary designations on retirement accounts and insurance policies are reviewed and updated so they align with the overall plan and do not unintentionally override trust intentions. Coordination is also needed with documents such as financial powers of attorney and HIPAA authorizations so that appointed agents have the access needed to manage affairs if the grantor becomes incapacitated. Periodic reviews ensure that beneficiary designations, trustee appointments, and supporting documents remain current with changing family dynamics and financial circumstances to avoid conflicts and unintended results.
Funding an ILIT often involves making gifts to the trust to pay premiums, which can have gift tax implications. Many grantors rely on the annual gift tax exclusion to fund premiums without triggering gift tax by providing Crummey notices to beneficiaries and documenting the gifts. If gifts exceed annual exclusions, the grantor may need to use a portion of lifetime gift and estate tax exemption and file a gift tax return to report the transfer. Careful planning helps manage these implications in line with the grantor’s overall tax strategy. Gift tax rules and exclusion amounts change over time, and the need to file a gift tax return does not necessarily mean actual tax is due. Proper documentation and timely filing when required are important to preserve the intended tax treatment. Discussing funding levels, review timing, and potential use of exemptions with counsel ensures both compliance and alignment with estate planning goals.
A trustee’s administrative responsibilities include maintaining accurate records of gifts and premium payments, communicating with insurance companies, filing any required tax returns, and making distributions to beneficiaries according to trust terms. The trustee should also keep clear documentation of notices sent to beneficiaries regarding annual gifts and any waivers of withdrawal rights. Recordkeeping and transparency help support the trust’s intended tax and estate treatment and reduce the likelihood of disputes or misunderstandings among beneficiaries. Trustees may also need to handle claims after the insured’s death, coordinate with estate representatives and beneficiaries, and manage investments of any proceeds held by the trust. Where the trust requires ongoing distributions, the trustee evaluates distribution requests, pays expenses, and ensures funds are used consistent with the trust purpose. Good communication and adherence to documented procedures make administration more efficient and effective.
The costs to establish an ILIT vary depending on the complexity of the plan, the need for coordination with other trusts or special provisions, and the time required to coordinate with insurance carriers. Upfront drafting and consultation fees typically reflect the work involved in tailoring trust language, advising on funding strategies, and preparing supporting documents. Factors that affect cost include the number of beneficiaries, the complexity of distribution provisions, and whether existing policies are being transferred or new policies are purchased by the trust. Ongoing costs can include trustee compensation if a paid trustee is used, expenses for recordkeeping, and any tax filings or trust administration services. For families with simpler needs who select a trusted individual as trustee and keep funding arrangements straightforward, ongoing fees may be minimal. For more complex arrangements, budgeting for professional administration can ensure continuity and proper management of trust assets over time.
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