An Irrevocable Life Insurance Trust (ILIT) can be a powerful component of a thoughtful estate plan for individuals and families in Lancaster and throughout Los Angeles County. At the Law Offices of Robert P. Bergman, we help clients understand how an ILIT works with other estate planning documents such as revocable living trusts, pour-over wills, and powers of attorney to manage wealth transfer, provide liquidity for estate obligations, and protect life insurance proceeds from unintended consequences. This guide explains what an ILIT does, who may benefit from one, and how it can fit into a broader estate planning strategy in California.
Choosing whether an ILIT makes sense requires careful review of financial circumstances, family dynamics, and retirement and insurance arrangements. The decision affects how life insurance proceeds are handled, potential estate tax exposure, and beneficiaries’ access to funds. Our focus is on clear explanations and practical options so you can weigh the advantages and tradeoffs. We outline typical provisions, administrative responsibilities, and how an ILIT interacts with other documents such as health care directives, powers of attorney, and guardianship nominations for minor children, all tailored to California law and local practice.
An ILIT is often used to remove life insurance proceeds from a taxable estate, to ensure proceeds go to intended beneficiaries, and to provide structured access to funds after a death. By placing a policy in an irrevocable trust, the insured may reduce estate tax exposure and avoid probate for those proceeds, while the trustee manages distribution and preserves benefits for heirs. Beyond taxes, an ILIT can protect proceeds from creditors, govern payouts for minors or beneficiaries with special needs, and coordinate with other estate planning tools to deliver a well-organized legacy that reflects your wishes and family financial realities.
The Law Offices of Robert P. Bergman serves clients across California, providing comprehensive estate planning services from our base in San Jose and support for clients in Lancaster and Los Angeles County. Our approach centers on listening to your objectives, examining your estate and insurance arrangements, and preparing clear trust documents such as irrevocable life insurance trusts, pour-over wills, and trust certifications. We emphasize practical administration and clear communication so trustees and beneficiaries understand their roles and responsibilities, helping families avoid confusion and unintended tax or probate consequences.
An Irrevocable Life Insurance Trust is a trust created to own a life insurance policy and control its proceeds after the insured’s death. Once assets or a policy are transferred into the trust, the trust becomes the policy owner and beneficiary under its terms, and the original owner typically relinquishes direct control over the policy. This structure can remove the proceeds from the insured’s probate estate for distribution according to the trust terms. Understanding the gifting requirements, potential three-year rule implications, and trustee duties is essential to implementing an effective ILIT under California law.
Implementing an ILIT requires deliberate drafting and careful administration, including naming trustees and beneficiaries, specifying distribution rules, and coordinating premium payments. Grantors must consider how premiums will be funded, whether by gifts to the trust or by other means, and how to document those gifts to comply with tax reporting requirements. Trustees must maintain trust records, communicate with beneficiaries, and manage the trust’s relationship with the life insurance carrier. Clear language in the trust document helps prevent disputes and supports the grantor’s overall estate planning goals.
An Irrevocable Life Insurance Trust is a type of irrevocable trust created specifically to own and administer a life insurance policy. The grantor sets the trust terms, transfers an existing policy or directs a new policy to be issued for the trust, and appoints a trustee to manage the policy and distribute proceeds according to the trust instrument. Because ownership is transferred, the proceeds are generally not part of the grantor’s probate estate if the trust was created and funded in compliance with applicable rules. The trustee’s role is key, and trust provisions can define how proceeds are paid to family members or used for specified purposes.
Key elements of an ILIT include the trust document language that names the trust, designates trustees and successors, identifies beneficiaries, and specifies distribution and administration rules. The process to establish an ILIT typically includes drafting the trust instrument, transferring ownership of a policy or purchasing a new policy in the trust’s name, documenting gifts that fund premiums, and ensuring compliance with tax and transfer timing rules. Maintaining accurate records, coordinating with insurance carriers, and providing clear beneficiary communications are administrative tasks that support the trust’s long-term effectiveness.
Understanding common terms helps demystify ILITs and related documents. Knowing the difference between grantor and trustee, the meaning of beneficiary designations, and the implications of ownership transfer can clarify how an ILIT interacts with estate taxes, probate, and beneficiary rights. This section defines essential concepts and explains how they apply in practice so you can make informed choices when drafting or funding an ILIT. Familiarity with these terms supports better communication with the trustee, beneficiaries, and advisors who help implement your plan.
The grantor is the person who creates the trust and transfers the policy into it. Once the grantor transfers ownership of the life insurance policy to the trust, the policy is owned by the trust rather than the individual. This transfer affects who has the legal rights to manage the policy, name beneficiaries within the trust, and receive the proceeds. Proper documentation of the transfer and clear timing are important to meet legal and tax objectives. The grantor may also make gifts to the trust to fund premium payments, which requires careful recordkeeping and adherence to gift tax rules and trust terms.
The trustee is the person or institution appointed to manage the ILIT, handle premium payments, and distribute proceeds according to the trust document. Trustees have a fiduciary duty to administer the trust impartially for the benefit of the beneficiaries, keep accurate records, file required tax returns if applicable, and make decisions consistent with the trust terms and state law. Selecting a trustee who will follow the trust provisions, communicate with beneficiaries, and coordinate with financial institutions and insurers is important, and naming successor trustees provides continuity if the original trustee cannot serve.
Beneficiaries are the individuals or entities designated to receive trust distributions after the insured’s death. The trust document can specify immediate lump-sum distributions, staggered payouts at certain ages, discretionary distributions by the trustee, or uses for specific purposes such as education or care. Clear beneficiary designations within the trust, rather than on the insurance carrier’s beneficiary form alone, help ensure the grantor’s intent is honored. Proper drafting reduces the chance of disputes and ensures distributions align with broader estate planning goals, including support for dependents or charitable gifts.
A key timing consideration is the rule that transfers to an ILIT within three years of death may be included in the deceased’s taxable estate in certain circumstances. This timing rule affects when to transfer an existing policy or when to purchase a new policy in the trust’s name. Grantors need to weigh timing, potential tax outcomes, and whether the trust’s benefits justify early transfers. Documentation of transfers and gifts for premium payments is also essential to support the trust’s intended effect and to provide clarity for trustees and tax reporting.
An ILIT is one of several estate planning tools that can manage life insurance proceeds and address estate tax concerns. Other options include keeping a policy in a revocable trust or leaving proceeds to beneficiaries outright through beneficiary designations, which may be simpler but could expose proceeds to probate, estate taxation, or creditor claims. Comparing options requires evaluating control, tax consequences, administration complexity, and how each choice fits into retirement planning, legacy goals, and the needs of heirs. We help clients compare these choices in plain language to choose the most appropriate solution.
For individuals whose estates are unlikely to face federal or significant state estate taxes, keeping a life insurance policy outside of an ILIT or relying on simple beneficiary designations may be an appropriate, lower-cost approach. If the primary goals are providing immediate liquidity to surviving family members and avoiding administrative complexity, straightforward arrangements can be effective. Considerations include the size of the estate, the identity and financial needs of beneficiaries, and whether probate avoidance through other tools, such as payable-on-death designations or a revocable living trust, meets your objectives without the permanence of an irrevocable trust.
A limited approach may be desirable when the costs and responsibilities of administering an ILIT outweigh expected benefits. Maintaining an ILIT involves trustee management, recordkeeping, and potential tax filings, and if those duties would create undue burden or expense for family members, a simpler solution could be preferable. In such circumstances, arranging for direct beneficiary designations combined with clear estate documents like a will or revocable trust can provide certainty while minimizing administrative obligations for survivors, provided those documents are regularly reviewed and updated.
An ILIT works best when coordinated with a broader estate plan that includes a revocable living trust, pour-over will, powers of attorney, and health care directives. A comprehensive plan ensures beneficiary designations, trustee powers, and distribution instructions align across documents, reducing contradictory provisions and minimizing the risk of probate, delay, or unintended tax consequences. Thorough review helps confirm that retirement plan designations, bank accounts, and real property are integrated into the plan so that the ILIT’s role is clear and consistent with your overall legacy and family support objectives.
Families with blended relationships, beneficiaries who have special needs, business interests, or significant creditor exposure may require a comprehensive approach to ensure the ILIT supports long-term goals. Tailored provisions can protect proceeds for minor children, provide structured distributions, and coordinate with special needs trusts or business succession arrangements. Comprehensive planning also addresses funding mechanisms for premiums and contingency plans for trustee succession, helping to avoid disputes and secure predictable outcomes that protect family members and intended beneficiaries after the grantor’s death.
A comprehensive estate planning approach can deliver multiple benefits: greater certainty that assets pass according to your wishes, efficient administration, reduced exposure to probate delays, and coordinated tax planning. When an ILIT is part of a full plan, trustees and beneficiaries receive clear guidance on distributions and responsibilities, which helps reduce confusion and disputes. Coordinated legal documents also make it easier to manage lifetime changes, such as marital status, property purchases, or changes in retirement accounts, ensuring the ILIT continues to serve its intended purpose across changing circumstances.
Beyond administration and tax considerations, a comprehensive plan improves family communication and continuity. Trustees who understand how the ILIT operates in concert with other trusts and directives can respond to beneficiary needs while following the grantor’s intent. A single review process that updates the ILIT, beneficiary designations, powers of attorney, and health care directives can keep the plan current and effective. For many clients, the peace of mind that comes from knowing all documents are aligned and ready to be administered when needed is a primary reason to pursue a full planning review.
An ILIT within a coordinated estate plan provides grantors with structured ways to control how life insurance proceeds are used, whether for immediate support, staged distributions, or specific purposes like education or care for a dependent with special needs. Clear trust provisions reduce the risk that proceeds are misused or subject to creditor claims. The trustee’s role in monitoring distributions and following trust terms adds a layer of protection for beneficiaries, allowing the grantor to match distribution timing and amounts to family needs and long-term financial security goals.
When properly implemented, an ILIT can remove life insurance proceeds from the grantor’s probate estate, which can reduce estate administration burdens and, in some situations, lower estate tax exposure. By separating ownership and beneficiary rights through a trust document, proceeds become subject to trust provisions rather than probate court processes. This can speed access for beneficiaries and provide clearer instructions for use of funds. The specific tax implications depend on the size of the estate and the timing of transfers, so planning and documentation are key to achieving intended outcomes.
When funding premiums for an ILIT, clear documentation of gifts and the method of payment is essential to avoid misunderstandings and to support intended tax outcomes. Grantors who contribute funds to trust beneficiaries or who make gifts intended to cover premiums should keep precise records, provide written communications to trustees, and follow consistent transfer procedures. These records make administration easier for trustees, provide evidence of intent for tax reporting, and help prove that premium payments were properly treated as gifts or as trust funds in accordance with the ILIT’s design.
Regular reviews of beneficiary designations, retirement accounts, and related estate documents help ensure the ILIT remains aligned with your wishes as life circumstances change. Life events such as marriage, divorce, births, deaths, or significant changes to assets can alter the best approach to funding an ILIT or distributing proceeds. Periodic reviews allow updates to language and coordination across documents so that beneficiaries and trustees receive consistent guidance, which reduces the likelihood of contested interpretations or unintended outcomes after the grantor’s death.
Consider establishing an ILIT if you want to keep life insurance proceeds out of your probate estate, provide structured distributions for beneficiaries, or manage potential estate tax exposure. Individuals with significant life insurance policies, complex family dynamics, or concerns about creditor claims may find an ILIT useful within an overall estate plan. Additionally, grantors who wish to support minor children, provide for beneficiaries with disabilities, or leave charitable gifts in a controlled manner can use ILIT provisions to implement those goals while maintaining clarity about trustee duties and distribution timing.
An ILIT may also be appropriate if you hold a life insurance policy that you do not want directly owned by you at death, or if you want to limit beneficiary access to proceeds until they reach certain ages or milestones. Since establishing an ILIT involves relinquishing ownership rights, it is important to consider both present needs and long-term intentions. Reviewing your retirement and investment accounts alongside insurance and trust arrangements ensures that an ILIT complements other legacy plans and supports efficient, predictable outcomes for your heirs.
People frequently use ILITs when they want to protect life insurance proceeds from estate inclusion, provide for minor children without giving direct lump sums, or coordinate life insurance with business succession planning. An ILIT can serve as a vehicle to manage the timing of distributions, pay estate settlement costs without liquidating other assets, and preserve funds for designated purposes. While not necessary for every estate, an ILIT can be a valuable tool for those seeking greater control over how insurance benefits are held and used after they are gone.
An ILIT can provide a structured way to safeguard insurance proceeds for beneficiaries who are minors or young adults, establishing age-based or milestone-based distributions that match the grantor’s intentions. By directing the trustee to manage and disburse funds according to specific rules, the grantor can reduce the risk that large sums are misused while still ensuring beneficiaries have access to support for education, healthcare, or living expenses. This approach helps families provide for the next generation in a measured and sustainable manner.
For family members with ongoing care needs or disabilities, an ILIT can serve as part of a broader strategy that includes trusts tailored to preserve public benefits while providing supplemental support. The ILIT’s proceeds can be directed to care-specific trusts or used to fund services, therapy, or housing in a way that aligns with the beneficiary’s long-term wellbeing. Proper drafting and coordination with other legal arrangements ensure that distributions are used to enhance quality of life without inadvertently affecting eligibility for government programs.
An ILIT can remove life insurance proceeds from probate administration, which can speed access to funds needed for immediate expenses, estate settlement costs, or mortgage and tax obligations. This liquidity can prevent forced sales of real estate or other assets during estate administration. By ensuring proceeds are available under trust terms, families may avoid financial strain during a difficult period. Trustees who understand the trust’s direction can quickly act to meet pressing needs while preserving longer-term assets for beneficiaries.
The Law Offices of Robert P. Bergman supports clients in Lancaster and the surrounding Los Angeles County communities with ILIT formation, funding strategies, and trustee guidance. Whether you live locally or are a California resident with ties to Lancaster, we provide clear explanations of trust mechanics, help prepare necessary documents such as certifications of trust and pour-over wills, and coordinate with financial advisors and insurance carriers. Our goal is to make the process straightforward, ensuring trustees and beneficiaries have the documentation and instructions they need to implement your plan when needed.
Clients choose our firm for practical, client-centered estate planning that addresses both legal formality and real-life administration. We focus on drafting clear trust language, preparing supporting documents such as wills and health care directives, and advising on funding strategies for premium payments. Our approach emphasizes thoughtful communication with trustees and beneficiaries so the transition upon a grantor’s death is as smooth as possible, reducing the chance of confusion, delay, or disputes during administration in Lancaster or elsewhere in California.
We assist with a wide range of estate planning documents commonly used with ILITs, including revocable living trusts, pour-over wills, financial powers of attorney, and HIPAA authorizations. When needed, we prepare additional instruments such as certification of trust forms, general assignments of assets to trust, or petitions to modify trust provisions. Our aim is to integrate the ILIT into your broader plan so that insurance proceeds are handled consistently and in line with your intentions for beneficiaries and family members.
Practical support extends to helping trustees understand their duties, maintaining documentation for premium gifts, and coordinating with insurance carriers to confirm ownership and beneficiary designations. We provide guidance on trustee succession planning and on the interplay between retirement accounts, life insurance, and estate administration. By addressing these details proactively, families in Lancaster can avoid common pitfalls and ensure the ILIT fulfills the grantor’s objectives for legacy, care, and financial support after death.
Our process begins with a focused review of your goals, current insurance policies, and other estate planning documents. We assess whether an ILIT aligns with your priorities, explain the implications of funding and ownership transfers, and suggest language to address distribution timing, trustee powers, and successor arrangements. Once the trust is drafted and signed, we assist with policy transfers or new policy issuance, prepare supporting documents like certification of trust or pour-over wills, and provide guidance to trustees on recordkeeping and premium payments to maintain the trust’s intended status.
In the initial stage we gather relevant financial and family information to determine the most appropriate structure for an ILIT and related documents. We review existing life insurance policies to see whether they should be transferred into the trust or if new coverage suits your goals better. During this review we also examine beneficiary designations on retirement plans and other assets to ensure consistency. Clear communication at this stage reduces the likelihood of conflicting instructions and helps create a trust that matches your intentions for the distribution of proceeds.
We will ask for copies of existing insurance policies, recent account statements, and any current estate planning documents such as wills and trusts. This helps us understand how an ILIT will interface with your overall plan. We will also discuss family dynamics and beneficiary needs, including considerations for minors or beneficiaries with special needs. This thorough information gathering allows us to tailor trust provisions, design funding methods for premiums, and anticipate administrative needs that trustees will face after the grantor’s passing.
We review the timing of transfers, particularly the three-year rule and how it may affect estate inclusion of policy proceeds, and discuss gift tax implications of premium funding. Understanding these timing issues helps you decide whether immediate transfer or alternative funding methods are preferable. We also consider how the ILIT works alongside retirement accounts, property ownership, and other assets to create an integrated plan that addresses liquidity needs and tax considerations while reflecting your distribution preferences.
Once objectives are clear, we draft the ILIT document to reflect the grantor’s distribution preferences, trustee powers, and administrative requirements. We coordinate with insurance carriers to transfer existing policies or to issue new policies in the trust’s name, and we prepare supporting instruments such as transfer forms and certification of trust. We also advise on methods for funding premiums through annual gifts or other arrangements and document those gifts to support appropriate tax treatment and administrative clarity for trustees and beneficiaries.
After drafting, the trust documents are executed according to state requirements and the grantor takes steps to transfer ownership of the policy to the ILIT if appropriate. This may involve completing assignment forms with the insurance carrier, updating policy ownership records, and ensuring beneficiary designations align with trust terms. Proper execution and timely notification to relevant parties reduce the risk of errors or disputes and help preserve the intended treatment of proceeds under the trust.
We assist with documenting gifts or other funding methods to cover insurance premiums, preparing written instructions that guide trustees on premium payments, and establishing clear reporting and recordkeeping protocols. These steps are important to demonstrate the trust’s funding history and support desired tax outcomes. Trustees receive guidance on how to maintain records, communicate with beneficiaries, and fulfill administrative duties to ensure continuity and compliance with the trust’s purpose.
After the ILIT is established, trustees must administer the trust in accordance with its terms and applicable law. Ongoing tasks include paying premiums when due, maintaining policy records, filing any required tax returns, and making distributions according to instructions in the trust document. Periodic reviews of the trust and related estate documents help ensure they remain current as finances, laws, and family circumstances change. We offer guidance to trustees and grantors on best practices to preserve the trust’s intended benefits over time.
Trustees should keep comprehensive records of premium payments, correspondence with the insurance carrier, and trust accounting details to preserve transparency for beneficiaries and maintain compliance with trust terms. Proper recordkeeping simplifies the trustee’s responsibilities and can prevent disputes. We provide templates and guidance for documentation, explain when professional help may be prudent, and assist trustees with questions about distributions, investments held by the trust, and reporting obligations under California law.
Life changes such as births, deaths, marriages, divorces, and significant changes to assets can affect whether an ILIT still meets your objectives. Regular reviews help determine whether trust provisions should be revised, whether funding strategies require adjustment, or whether coordination with other documents needs improvement. We recommend periodic consultations to update the ILIT and related estate planning documents so they continue to deliver the intended protection and administrative clarity for beneficiaries and trustees.
An Irrevocable Life Insurance Trust is a trust designed to own and manage a life insurance policy so that proceeds are paid to the trust and distributed according to its terms. By transferring ownership of a policy into the trust, the policy proceeds are generally kept out of the insured’s probate estate, which can provide greater control over distributions and potential estate tax planning benefits. The trust is irrevocable, meaning the grantor gives up direct control over the policy ownership, so careful planning is required to ensure the arrangement meets long-term goals. People use ILITs to protect proceeds from probate delays, to structure distributions for beneficiaries, and to potentially reduce estate inclusion of insurance proceeds under certain circumstances. Establishing an ILIT involves naming trustees and beneficiaries, coordinating transfers or new policy issuance with the carrier, and documenting premium funding. Trustees administer the policy and carry out distribution instructions after the insured’s death, providing a degree of predictability for recipients and clarity for estate administration.
Transferring a life insurance policy into an ILIT can help exclude the policy’s proceeds from the grantor’s probate estate, which may reduce estate taxes in some cases depending on the size of the estate and timing of transfers. If the transfer occurs more than three years before the grantor’s death and other conditions are met, proceeds are less likely to be included in the taxable estate. Taxes and filing responsibilities depend on individual circumstances, so it is important to document gifts used to pay premiums and to coordinate transfer timing with broader estate objectives. For some grantors, the ILIT’s removal of proceeds from probate helps preserve estate liquidity and reduces the administrative burden on survivors. However, the specific tax outcome varies with estate size, recent transfers, and applicable laws. Careful planning and clear recordkeeping are necessary to achieve the anticipated tax benefits and to ensure the ILIT functions as intended alongside retirement assets, property ownership, and other estate planning devices.
Trustees should be individuals or institutions who can responsibly manage premium payments, maintain trust records, and make distributions in accordance with the trust terms. Ideal trustees are organized, trustworthy, and able to handle administrative tasks such as communicating with insurance carriers and beneficiaries. Some grantors choose a trusted family member, a close friend, or a professional trustee depending on the complexity of the trust, family dynamics, and the expected administrative burden over time. When selecting a trustee, consider naming a successor trustee in the event the primary trustee is unable or unwilling to serve. Clarity about trustee powers and duties in the trust document reduces the risk of disputes. If family members are not well-positioned to manage these responsibilities, appointing a third-party trustee or co-trustees can provide continuity and consistent administration of the ILIT.
As the name implies, an ILIT is generally irrevocable, meaning the grantor cannot unilaterally revoke or amend the trust after it is properly executed. This permanence provides the legal separation of ownership that produces the trust’s main benefits. Because the grantor gives up direct control, it is critical to design the trust carefully from the start to reflect intended distributions, trustee powers, and contingencies for changing circumstances. In limited situations, changes may be possible through trust-modification procedures specified in the document, by mutual agreement of interested parties, or by court petition if circumstances warrant modification. These options vary by state and case facts and can involve legal processes. Therefore, planning up front to anticipate likely changes and naming appropriate trustees and successors is typically the preferable course.
Premiums for a policy owned by an ILIT are commonly paid through gifts to the trust by the grantor, who gives cash to the trust to cover premium payments. The trust then pays the insurer. Another approach is to use Crummey withdrawal powers when annual gifts are made so that the gifts qualify for the annual gift tax exclusion. Proper documentation of gifts and any withdrawal notices is important to demonstrate compliance with tax rules and to support the intended treatment of those contributions as gifts to the trust. Trustees must maintain records of gift receipts, premium payments, and communications with the insurance carrier. Maintaining a predictable funding mechanism and clear records helps preserve the policy and supports administration after the grantor’s death. If gifts are not provided and premiums lapse, the policy could terminate, undermining the trust’s purpose, so establishing reliable funding and instructions is an important planning step.
If the grantor dies within a specified period after transferring the policy to the ILIT, certain tax rules may cause the proceeds to be included in the grantor’s taxable estate. The most commonly referenced timing consideration involves a three-year lookback period that can affect estate inclusion for transfers involving certain assets. The precise effect depends on the nature of the transfer and the timing, so careful planning and appropriate documentation are essential to minimize unintended consequences. To address timing concerns, grantors may consider purchasing a policy directly in the trust’s name or transferring ownership well in advance of expected need, while weighing the tradeoffs of insurance cost and administrative considerations. Consulting about timing and funding strategies helps determine the best course of action for a particular family and financial situation, including steps to document transfers and gifts supporting ongoing premium payments.
For beneficiaries who receive government benefits, such as certain public assistance programs, the structure of trust distributions matters to preserve eligibility. An ILIT can be drafted to direct proceeds to a supplemental needs trust or to include distribution rules that avoid interfering with needs-based benefits. Proper drafting ensures that funds provide support while minimizing the risk of disqualifying a beneficiary from critical public programs. Coordination with advisors who understand benefit rules is important when an ILIT is intended to benefit a person who relies on government programs. Language can be included to require that distributions be managed by a trustee for supplemental needs, or to limit direct distributions that could affect eligibility. Thoughtful drafting balances the beneficiary’s financial wellbeing with eligibility protection for essential public benefits.
Whether an ILIT must file tax returns depends on the trust’s activities and income. Many ILITs are designed to be passive holding vehicles for life insurance proceeds, which may generate no taxable income while the policy is in force. However, if the trust receives income, holds investments, or realizes transactions that create taxable income, the trustee may need to file trust tax returns and provide required information to beneficiaries. Trustees should maintain accurate accounting records to determine tax obligations and to prepare any necessary filings. Trustees may also have reporting responsibilities related to premium funding and gift documentation, and should consult tax advisors to confirm filing requirements. Even when federal income tax filings are not required, reliable recordkeeping simplifies administration and supports transparency for beneficiaries and any required state filings or reporting obligations.
Life insurance proceeds held in an ILIT can be used to pay estate taxes, debts, and other settlement costs if the trust terms and the trustee’s discretion permit such uses. Because life insurance proceeds are often readily available, they are commonly relied upon to provide liquidity so that executors or trustees do not need to sell illiquid assets such as real estate in order to cover taxes and debts. Clear trust provisions addressing whether the trustee may use proceeds for these obligations help guide administration appropriately. If the goal is to ensure funds are available for estate expenses, the trust should explicitly authorize such uses and provide direction to the trustee. Coordination with the overall estate plan and executor responsibilities helps ensure that available funds are allocated in accordance with legal priorities and the grantor’s intentions, balancing immediate liabilities with the long-term benefit of beneficiaries.
It is prudent to review an ILIT and your broader estate plan periodically and after major life events such as births, marriages, divorces, changes in financial circumstances, or substantial changes in estate law. Regular reviews ensure the trust’s terms, beneficiary designations, and coordination with retirement and investment accounts remain consistent with your goals. Laws and financial circumstances evolve, so periodic assessment helps keep the plan effective and reduces the likelihood of unintended results. Annual or biennial check-ins can be helpful for monitoring premium funding and trustee readiness, while a more thorough review every few years or after significant events can address structural changes. These reviews are also opportunities to update supporting documents like certification of trust, general assignments of assets, or pour-over wills so that the ILIT continues to function smoothly within your overall plan.
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