An irrevocable life insurance trust (ILIT) can be an important component of a thoughtful estate plan for residents of South Lake Tahoe. An ILIT holds a life insurance policy outside of a taxable estate, which can help preserve proceeds for loved ones and reduce estate tax exposure when properly drafted and funded. The attorneys at Law Offices of Robert P. Bergman assist California clients with trust design, policy transfer, and coordination of estate documents to reflect clients’ wishes. This page explains the basics of ILITs, how they are commonly used in California planning, and practical steps to move from intention to implementation.
Setting up an ILIT requires careful attention to ownership, beneficiary designations, and funding mechanics. For many families, an ILIT provides a predictable way to manage life insurance proceeds, provide liquidity for estate expenses, and protect proceeds from inclusion in the grantor’s taxable estate. The trust document must be drafted to meet legal standards and the transfer of policy ownership must be executed correctly to avoid unintended tax consequences. This guide covers what an ILIT is, who benefits from one, and the process our office follows to create and maintain these arrangements for South Lake Tahoe clients.
An ILIT matters because it can change how life insurance proceeds are treated for estate and probate purposes, often keeping the proceeds out of the grantor’s estate and providing a structured distribution to beneficiaries. It also addresses concerns about creditor claims, probate delays, and continuity of financial support for surviving family members. When properly funded and administered, an ILIT can preserve wealth for beneficiaries, ensure that insurance proceeds are used for intended purposes, and coordinate with other estate plan documents to deliver a clear plan for transfer of assets after death.
Law Offices of Robert P. Bergman serves California clients from a foundation of practical estate planning knowledge and hands-on document drafting. We help clients evaluate whether an ILIT fits within their broader estate goals, prepare trust documents such as pour-over wills and certifications of trust, and coordinate transfers and funding steps with insurance carriers. Our approach emphasizes clear communication, responsiveness to client questions, and tailored planning to reflect family dynamics and financial objectives. Call 408-528-2827 to discuss how an ILIT might align with your plan for transferring assets and protecting life insurance proceeds.
An ILIT is a legal arrangement in which a trust, once established, owns a life insurance policy on the grantor’s life. The trust is irrevocable, meaning the grantor gives up certain ownership rights to the policy after funding. That structure can prevent the policy proceeds from being included in the grantor’s taxable estate at death, subject to timing and proper administration. Establishing an ILIT involves drafting trust terms, naming trustees and beneficiaries, transferring or purchasing a policy inside the trust, and following transfer rules to achieve the intended tax and estate planning results.
Funding and maintaining an ILIT requires careful coordination. If an existing policy is being transferred into the trust, specific waiting periods and gift tax considerations may apply. Alternatively, the trust may be established to purchase a new policy with gifts from the grantor. The trustee will manage policy premium payments and administer distributions according to trust terms. Because mistakes in ownership transfer or premium payment can affect the trust’s benefits, planning and clear documentation are important to preserve the trust’s intended treatment under estate rules.
An irrevocable life insurance trust is a distinct legal entity created to hold a life insurance policy and instruct how proceeds should be used and distributed. The grantor sets the trust terms, names a trustee to manage the policy and payments, and designates beneficiaries who will receive the trust assets at the grantor’s death. Because the trust owns the policy, the proceeds are paid to the trust rather than directly to beneficiaries, allowing the trustee to follow distribution instructions and protect proceeds from probate. Proper timing and funding are essential to achieve the typical tax and estate planning objectives associated with an ILIT.
Key elements of an ILIT include the trust instrument, trustee appointment, beneficiary designations, instructions for premium payments, and provisions for trust administration. Typical processes include drafting the trust document with clear distribution and management provisions, transferring existing life insurance policies or arranging for new policy purchases inside the trust, and establishing a plan for making premium payments to the trustee. The trustee must accept trustee duties and maintain records. Coordination with life insurance carriers and other estate documents ensures the ILIT functions as intended when benefit distributions become necessary.
Understanding ILIT terminology helps clients make informed decisions. Common terms include grantor, trustee, beneficiary, funding, and irrevocability. Knowing how each role functions and how funding mechanisms operate clarifies responsibilities and tax implications. This glossary provides plain-language definitions of frequent terms you will encounter when discussing an ILIT with your attorney or financial advisor. Familiarity with these terms supports better collaboration during drafting and administration, and reduces the risk of misunderstandings that can affect the trust’s intended outcomes.
The grantor is the person who creates the ILIT and sets its terms. By establishing the trust, the grantor transfers certain rights in a life insurance policy to the trust, which typically means the grantor can no longer control or revoke the trust terms. The grantor’s decisions about beneficiaries, trustee appointment, and funding methods determine how proceeds will be handled at death. Clarifying the grantor’s intentions is a primary step in drafting a trust that aligns with family needs and estate planning goals.
The trustee is the individual or entity entrusted to manage the trust on behalf of the beneficiaries. Responsibilities include accepting ownership of the policy, making or receiving premium payments, communicating with the insurance company, maintaining records, and distributing proceeds according to the trust’s terms at the appropriate time. Trustees must follow fiduciary duties and the provisions laid out in the trust document. Selecting a trustee involves considering reliability, administrative capacity, and willingness to carry out the trust’s instructions over time.
Beneficiaries are the people or entities designated to receive proceeds or other distributions from the ILIT according to the trust document. The grantor specifies who receives payments and under what conditions, which may include lump-sum distributions, staged distributions for specific needs, or instructions for use of funds for education, healthcare, or other purposes. Clear beneficiary designations and trust provisions help ensure the trust’s assets are used in a manner consistent with the grantor’s goals and can protect proceeds from probate or direct creditor reach depending on the trust’s terms.
Irrevocability means the trust cannot be easily altered or rescinded by the grantor after it has been created and funded. Funding refers to the act of placing the life insurance policy into the trust, either by transferring an existing policy to the trust or arranging for the trust to own a new policy. Funding and timing are important: transfers made too close to the grantor’s death may not achieve the desired estate tax treatment, and premium payment arrangements must be properly documented to preserve the trust’s intended benefits.
When considering life insurance in an estate plan, clients often choose between a more limited approach that addresses immediate beneficiary designations and a comprehensive approach that integrates a trust into a wider estate plan. A limited approach may be appropriate for simple situations where immediate beneficiary designations suffice. A comprehensive approach, such as using an ILIT, is designed to address tax planning, creditor concerns, structured distributions, and coordination with other trust arrangements. Evaluating family circumstances, asset levels, and long-term goals helps determine which path best fits a client’s needs.
A limited approach to life insurance planning may be sufficient when the estate is modest, family relationships are straightforward, and beneficiary wishes are clear and uncontested. In such cases, straightforward beneficiary designations on the policy and complementary estate documents like a pour-over will can deliver a simple, efficient transfer of proceeds. This approach typically involves fewer administrative steps and reduced drafting complexity, but it may not provide the protections or tax planning features a trust can offer when circumstances are more complicated.
A limited approach can be appropriate for clients whose policies serve short-term protection needs or whose estates are well below thresholds that trigger estate tax concerns. If the primary goal is to provide immediate liquidity for final expenses or to leave a modest sum to a surviving spouse, simple beneficiary designations and routine beneficiary updates may be enough. However, clients should consider whether future changes in assets or family circumstances might call for revisiting the plan to ensure the chosen approach continues to meet long-term objectives.
A comprehensive trust-based plan, like an ILIT, is often chosen to keep life insurance proceeds out of the taxable estate and to provide a controlled method for distributing those proceeds. For individuals with significant assets or those concerned about estate tax exposure, the ILIT offers a legal structure that, when properly funded and timed, can help preserve the value of insurance proceeds for intended beneficiaries and reduce administrative burdens for survivors after the grantor’s death.
Clients with blended families, beneficiaries who may need protection from creditors, or those with tax planning concerns may benefit from a comprehensive plan that integrates an ILIT with trusts such as special needs trusts or retirement plan trusts. A comprehensive approach allows tailored distribution terms, coordination with other documents like pour-over wills and powers of attorney, and planning for potential contingencies. This approach supports long-term planning and provides a framework for trustees to manage proceeds according to the grantor’s stated intentions.
A comprehensive ILIT approach can offer several benefits, including potential reduction of estate tax exposure, protection of proceeds from probate, and controlled distributions timed to beneficiary needs. By placing the policy in trust and appointing a trustee, the grantor creates a mechanism for how proceeds will be used, which can be particularly valuable for managing funds for minor children, adult beneficiaries with creditor risks, or family members who require structured support. The trustee’s role helps ensure orderly administration when benefits become payable.
In addition to asset protection and distribution control, a comprehensive approach supports integration with other planning documents such as pour-over wills, health care directives, and powers of attorney. This coordination helps avoid conflicting beneficiary designations and ensures that the ILIT aligns with the overall estate plan. Ongoing review and clear funding instructions also make it easier for trustees and family members to carry out the grantor’s intentions with minimal confusion during a stressful time.
One central benefit of an ILIT is asset protection for insurance proceeds that might otherwise be subject to probate or creditor claims. When a trust owns the policy, proceeds are paid into the trust and are managed by the trustee in accordance with the trust document. This can limit direct exposure to probate delays and can include terms that restrict creditor access depending on applicable law. Properly drafted trust provisions help promote reliable administration and reduce the risk that proceeds are used in ways the grantor did not intend.
An ILIT provides the grantor with control over how and when beneficiaries receive proceeds, which is particularly helpful when beneficiaries have differing financial maturity or special needs. The trust terms can specify staged distributions, use for education or health care, or creation of ongoing financial support. This level of control reduces the likelihood that proceeds will be misapplied and offers a practical framework for trustees to manage funds responsibly, enabling tailored outcomes that reflect the grantor’s intent and family circumstances.
Begin the ILIT process by clearly documenting who should receive proceeds and how ownership of the policy will change. Early clarification prevents misunderstandings and helps avoid delays when transferring an existing policy or establishing a new one inside the trust. Ensure beneficiary designations on non-trust assets are consistent with trust terms, and communicate intentions with the proposed trustee so they understand duties regarding premium payments and record keeping. Clear early decisions reduce the potential for conflicts and administrative obstacles later.
Periodically review the trust documents, trustee appointment, and premium funding arrangements to ensure the ILIT remains aligned with family circumstances and insurance carrier rules. Changes in law, family structure, or financial circumstances may necessitate adjustments in how premiums are paid or how distributions should be handled. Regular reviews also confirm that any new policies are correctly owned by the trust and that supporting documents like pour-over wills and powers of attorney remain coordinated and up to date.
Consider an ILIT if you want to provide protected financial support to beneficiaries while seeking to exclude life insurance proceeds from your taxable estate. Individuals with significant life insurance policies, real estate holdings, or retirement accounts may find that an ILIT helps ensure liquidity for estate settlement costs and offers a structured distribution plan. The trust can also offer protections against probate delays and can help manage access to funds for beneficiaries who might otherwise be vulnerable to creditors or poor financial decision-making.
An ILIT can be especially helpful for those with blended families, children with special needs, or beneficiaries who require long-term oversight of funds. It supports setting conditions for distributions, helping ensure that proceeds are used for intended purposes such as education, healthcare, or long-term maintenance. Working through an ILIT can also provide peace of mind by clarifying post-mortem financial steps and reducing uncertainty for surviving family members during a stressful time.
Common circumstances for establishing an ILIT include large life insurance policies intended to provide estate liquidity, families seeking to limit probate involvement, and situations where beneficiaries would benefit from structured distributions. Other reasons include coordinating life insurance with retirement plan trusts, addressing potential estate tax exposures, and protecting proceeds for beneficiaries who receive public benefits or have creditor issues. The ILIT offers a flexible framework to meet a variety of planning goals while providing clear trustee guidance for distribution and management.
When estate values approach thresholds that could trigger estate tax concerns, an ILIT can be a planning tool to help keep life insurance proceeds out of the taxable estate, provided transfers and timing conform to applicable rules. Implementing an ILIT requires attention to transfer timing and funding mechanics to achieve the intended tax outcome. Proper planning can help preserve the value of insurance proceeds for beneficiaries rather than subjecting those proceeds to potential estate taxation at death.
An ILIT can supply surviving family members with needed liquidity for final expenses, mortgages, or ongoing living costs while protecting other estate assets from forced liquidation. By placing the policy proceeds in trust, the trustee can manage distributions in line with the grantor’s wishes, providing support while safeguarding principal. This approach is often used by individuals who want to keep property intact for future generations or who seek to ensure that life insurance proceeds are used for defined purposes rather than distributed outright.
For beneficiaries who receive means-tested public benefits or who have special needs, placing life insurance proceeds in a trust can help provide supplemental support without jeopardizing benefit eligibility. The trust can include terms that direct funds toward care, education, and supplemental services while preserving access to public programs. Drafting such arrangements requires careful attention to trust language and coordination with other planning elements to ensure that the trust’s distributions complement, rather than replace, necessary public benefits.
If you live in South Lake Tahoe and are considering an ILIT as part of your estate plan, our office can help you evaluate the advantages and implement the necessary trust and funding steps. We guide clients through policy transfers, trustee appointments, and coordination with other documents such as pour-over wills, advance health care directives, and powers of attorney. Call 408-528-2827 to arrange an initial discussion about your goals and to learn how an ILIT might fit into your broader plan to protect and distribute assets in California.
Clients turn to our office for clear, practical guidance on trust-based life insurance planning and estate coordination. We focus on tailored drafting that reflects client objectives and family dynamics, and we assist with the administrative steps needed to fund and maintain the trust once it is established. This includes preparing supporting documents that work together with an ILIT, confirming policy carrier requirements, and helping trustees understand their duties to beneficiaries and the trust.
Our approach emphasizes communication, thorough documentation, and proactive planning to reduce the risk of unintended consequences. We assist with coordinating beneficiary designations, preparing pour-over wills and certifications of trust, and counseling clients on funding strategies that allow the ILIT to function as intended. Clients appreciate clear explanations of options and practical next steps for securing intended outcomes for family and loved ones.
We invite South Lake Tahoe clients to schedule a conversation to discuss whether an ILIT aligns with their estate goals. During the initial discussion, we gather information about existing policies, family circumstances, and broader planning objectives to recommend an approach that fits each client’s situation. Our goal is to provide actionable guidance and help implement a durable plan that protects insurance proceeds and supports beneficiaries according to the grantor’s wishes.
Our process for ILIT matters begins with a careful review of the client’s existing estate documents and life insurance policies, followed by a discussion of goals and family considerations. We draft or revise the trust instrument to reflect desired distribution terms and prepare necessary supporting documents. We coordinate with insurance carriers and assist with policy transfers or trust-owned policy purchases. After the trust is funded, we provide guidance on trustee responsibilities and recommend periodic reviews to ensure the arrangement continues to meet client objectives over time.
The initial step involves gathering detailed information about existing policies, beneficiaries, and overall estate planning goals. During this conversation we discuss the mechanics of ILIT funding, timing considerations, and any concerns about estate tax exposure or creditor protection. This phase sets the foundation for drafting a trust that reflects the client’s intentions and for identifying any potential complications with transferring policy ownership. Clear information at the outset helps streamline the drafting and funding steps that follow.
We review current life insurance policies, beneficiary designations, retirement plan documents, wills, and related trust instruments to identify how an ILIT would interact with existing planning. This review helps determine whether an existing policy should be transferred to the trust or whether the trust should purchase a new policy. Identifying potential conflicts or timing issues at this stage prevents surprises later and ensures the ILIT operates as intended when benefits become payable.
We work with clients to clarify their goals for the life insurance proceeds, such as providing liquidity, funding education, or supporting surviving family members under specified conditions. Clear beneficiary designations and distribution instructions are established in the trust document so the trustee can act decisively when needed. This planning reduces family disputes, aligns expectations, and ensures the trust provides the intended protections and support for beneficiaries.
In the drafting phase we prepare the trust instrument with provisions tailored to the client’s distribution objectives, trustee powers, and administrative procedures. The trust includes instructions on premium payment methods, trustee authority to manage the policy, and precise beneficiary distribution rules. We also prepare ancillary documents such as certifications of trust and coordination language for existing estate planning documents to ensure cohesive implementation. Clear drafting at this stage is essential to the trust’s effectiveness when it is funded and administered.
We prepare detailed trust documents and funding instructions describing whether an existing policy will be transferred into the trust or whether the trust will acquire a new policy. These instructions outline the steps for the grantor and trustee to follow, specify premium funding sources, and identify any reporting or recordkeeping needed. Well-documented funding instructions help preserve the intended treatment of the policy and provide trustees with clear direction when handling premium payments and communication with the insurer.
We coordinate directly with life insurance carriers to confirm required forms and documentation for transferring ownership to the trust or establishing the trust as the policy owner. This coordination avoids administrative errors that can lead to policy lapses or unintended tax consequences. Ensuring that the insurer recognizes the trustee and accepts the ownership change reduces the likelihood of future disputes and helps preserve the intended estate planning benefits of placing the policy inside the trust.
Once the trust documents are signed and ownership has been transferred or a new policy is issued in the trust’s name, the trustee must implement the funding plan and maintain records of premium payments and communications. We assist clients and trustees during this transition and recommend periodic reviews to ensure the trust continues to reflect the grantor’s wishes and to address any changes in law, family structure, or financial circumstances. Ongoing oversight helps keep the trust effective and aligned with long-term planning goals.
During this step the policy ownership is formally transferred to the trust and the trustee must sign any required acceptance forms. Documentation of the transfer and proof of trustee authority should be retained to support the trust’s administration. The trustee must also ensure premium payments are made on schedule and that the insurance carrier has accurate contact information for trust-related inquiries. Properly documenting these actions provides a clear administrative record if questions arise later.
After funding, periodic reviews are recommended to confirm the trust still meets the grantor’s objectives and to account for changes in family circumstances, insurance carrier policies, or tax laws. While the trust is irrevocable, certain administrative updates and successor trustee designations may be needed over time. Regular reviews help ensure that premium funding arrangements remain viable and that the trustee has the guidance necessary to administer distributions consistent with the grantor’s stated intentions.
An irrevocable life insurance trust is a trust designed to own and manage a life insurance policy for the benefit of named beneficiaries. The grantor creates the trust, funds it with an insurance policy or directs gifts to the trust to pay premiums, and names a trustee to administer the trust. Because the trust holds legal ownership of the policy, proceeds are paid to the trust rather than directly to beneficiaries, allowing the trustee to follow distribution instructions and manage funds according to the trust terms. The trust is irrevocable once properly established and funded, which generally means the grantor cannot revoke or unilaterally change the trust. That structure can help exclude policy proceeds from the grantor’s taxable estate when transfers meet timing and funding requirements, and it can offer protection from probate and structured distributions that reflect the grantor’s intentions.
An ILIT can assist estate planning by potentially removing life insurance proceeds from the grantor’s taxable estate, provided the trust is set up and funded in accordance with tax and transfer rules. For those concerned about estate tax exposure or the need to provide immediate liquidity to pay estate settlement costs, an ILIT offers a mechanism to preserve proceeds for heirs while coordinating distributions according to the grantor’s wishes. California residents should be mindful of timing rules and gift tax implications when funding an ILIT, and should coordinate the ILIT with other estate planning documents like pour-over wills and retirement plan trusts. Professional guidance helps ensure that the ILIT complements overall planning objectives and follows applicable federal and state considerations.
Yes, existing life insurance policies can often be transferred into an ILIT, but the transfer must be handled with care. When an existing policy is transferred to the trust, there may be a three-year lookback rule for estate tax purposes under federal rules, which could cause the proceeds to remain includible in the estate if the grantor dies within that period. Proper documentation of the transfer and confirmation from the insurer is necessary to avoid administrative issues. Alternatively, the trust can be established to purchase a new policy owned by the trust. Deciding between transfer and new purchase depends on policy terms, surrender values, and the client’s timing and tax objectives. Coordination with the insurance company and careful drafting of trust provisions is important to achieve the desired outcome.
A trustee is the person or entity charged with managing the ILIT, receiving policy proceeds, paying premiums when appropriate, and distributing trust assets according to the trust instrument. The trustee must be willing to accept fiduciary responsibilities and to maintain clear records. Many clients select a trusted family member, a friend who can manage administrative tasks, or a professional fiduciary depending on the complexity of the trust and the anticipated duties. When choosing a trustee, consider availability, organizational skills, and the ability to follow the grantor’s instructions over time. Naming successor trustees and providing clear guidance in the trust document helps ensure continuity and reliable administration if the original trustee is unable to serve.
Once a policy is owned by an ILIT, premium payments are typically made to the trust by the grantor as gifts, or the trust may hold funds gifted for premium payments. The trustee is responsible for ensuring premiums are paid on time to maintain coverage. Gift documentation and coordination with the trust’s funding instructions help establish a clear record and avoid misunderstandings. Structured methods for premium funding, such as annual gifts or payments to the trustee, help maintain policy status without inadvertently creating taxable consequences. Clear instructions in the trust document and good recordkeeping are essential for both administration and any future inquiries regarding the trust or policy ownership.
Timing is important because certain transfers into an ILIT can be subject to a lookback period for estate tax inclusion. If the grantor transfers an existing policy to the trust and dies within a specified period, proceeds may be includible in the grantor’s estate. The lookback rule aims to prevent transfers made primarily to avoid estate taxation shortly before death. Planning ahead helps avoid unintended inclusion of proceeds in the taxable estate. Because of timing and gift tax considerations, clients should plan ILIT transfers or new policy purchases well before anticipated changes in health or estate status. Early discussion and deliberate implementation reduce the risk that timing issues will undermine the trust’s intended benefits.
An ILIT can be an effective vehicle to protect funds for beneficiaries with special needs while preserving eligibility for public benefits when properly designed. The trust document can direct distributions in ways that supplement, rather than replace, public benefits, and can be structured to provide for long-term care, education, and discretionary support. Careful drafting and coordination with a special needs planning approach are essential to avoid jeopardizing benefits. Working with counsel to craft trust language that complements existing benefit structures helps ensure the funds are used to enhance the beneficiary’s quality of life without adversely affecting eligibility. The trustee’s role in administering disbursements is key to achieving these objectives.
Having a will or a revocable living trust is a fundamental part of estate planning, but an ILIT addresses issues specific to life insurance ownership and the handling of insurance proceeds. Whereas a will or revocable trust governs assets you retain control over, an ILIT, once funded, separates the policy from your taxable estate and sets out how proceeds will be administered. For some clients, an ILIT is a complementary tool that works with other estate documents to produce a coordinated result. Deciding whether an ILIT is necessary depends on policy size, family considerations, and tax planning objectives. Reviewing your overall estate plan helps determine whether adding an ILIT will achieve the outcomes you want for beneficiaries and your broader estate goals.
Common mistakes when creating an ILIT include failing to properly transfer ownership or failing to coordinate beneficiary designations and supporting estate documents. Administrative oversights, such as not completing insurer forms correctly or neglecting to document premium gifts, can undermine the trust’s intended benefits. Mistakes related to timing, such as transfers made too close to death, can also affect estate tax treatment. Avoiding these errors requires clear documentation, coordination with the insurer, and careful drafting of the trust instrument. Regular review after funding helps ensure the ILIT continues to operate as intended and that administrative responsibilities are being met by the trustee.
The time required to set up and fund an ILIT varies depending on whether an existing policy is being transferred or a new policy is being issued. Drafting the trust and preparing documents can often be completed in a few weeks, while coordinating with an insurer on transfers or new policy issuance may add additional time. Gathering necessary documents and confirming beneficiary and trustee decisions can influence the timeline. Funding steps and insurer processing times will affect completion. Planning ahead and preparing required documentation in advance can shorten the process. A clear plan and timely communication with the insurance carrier and trustee help move the matter to finalization efficiently.
Criminal Defense
Homicide Defense
Manslaughter
Assault and Battery
Assault with a Deadly Weapon
Battery Causing Great Bodily Injury
Domestic Violence
Domestic Violence Protection Orders
Domestic Violence Restraining Order
Arson Defense
Weapons Charges
Illegal Firearm Possessions
Civil Harassment
Civil Harassment Restraining Orders
School Violence Restraining Orders
Violent Crimes Defense
Estate Planning Practice Areas