An irrevocable life insurance trust (ILIT) is a planning tool used to remove life insurance proceeds from a taxable estate while providing liquidity to pay taxes, debts, or to carry out a client’s wishes. For residents of Marina del Rey and surrounding communities, understanding how an ILIT functions, how ownership and beneficiary designations interact with trust law, and how gift tax rules apply is essential. This introduction outlines the basic purpose of an ILIT and previews the issues addressed on this page, including trustee selection, funding methods, and coordination with wills and other trusts to accomplish estate planning goals.
Deciding whether an ILIT fits your circumstances involves evaluating family dynamics, asset composition, and objectives for wealth transfer over time. This page explains practical considerations such as funding strategies to avoid unintended gift tax consequences, managing trust-owned policies after the grantor’s death, and protecting policy proceeds for beneficiaries. We also cover how an ILIT can preserve eligibility for certain programs, limit creditor claims, and establish controlled distributions. The aim is to provide clear, practical information so you can make informed choices about whether and how an ILIT should be part of your overall estate plan.
An ILIT can provide significant benefits for families seeking to protect life insurance proceeds from estate taxation and ensure that those proceeds are distributed according to the grantor’s wishes. By transferring ownership of a policy into a trust, the proceeds may be excluded from the grantor’s taxable estate, which can preserve greater value for beneficiaries. An ILIT also allows for structured distributions, control over how funds are used, and the appointment of a trustee to administer proceeds responsibly. For those with estate tax exposure or special distribution needs, an ILIT can be a versatile planning tool that complements wills and revocable trusts.
The Law Offices of Robert P. Bergman provides estate planning services to families throughout California, including clients in Marina del Rey and Los Angeles County. Our approach focuses on understanding each client’s goals and designing durable, legally sound plans that coordinate trust instruments, wills, powers of attorney, and beneficiary designations. We guide clients through trust funding, trustee selection, and documentation required to maintain the intended tax and legal benefits. Clear communication and careful drafting help reduce the chance of disputes and ensure that life insurance proceeds are managed and distributed with the grantor’s intent in mind.
An irrevocable life insurance trust requires transferring ownership of an existing policy or purchasing a new policy owned by the trust. Once the transfer is complete, the policy is no longer considered part of the grantor’s estate for estate tax purposes, provided transfers are completed outside the three-year lookback period when applicable. The trustee holds and administers the policy, can make premium payments from trust funds, and receives the proceeds at death for distribution according to the trust terms. Establishing an ILIT involves drafting precise trust provisions, preparing trust documentation, and coordinating with insurance carriers and financial advisors.
When designing an ILIT, careful attention to timing, gift tax considerations, and trust language is required to preserve the intended benefits. The grantor commonly makes gifts to the trust to cover premiums, and those gifts may be structured to use annual gift tax exclusions. The trust agreement defines who may receive distributions, how proceeds are invested, and any restrictions placed on use of funds. Working through these details at the outset reduces the potential for disputes, unintended tax consequences, and administrative complications after the grantor’s death.
An irrevocable life insurance trust is a trust into which the grantor transfers ownership of a life insurance policy or names the trust as the owner and beneficiary. Because the trust owns the policy, proceeds paid at death are held and distributed by the trustee under the trust’s terms rather than passing directly to named beneficiaries. This separation can remove the policy proceeds from the grantor’s taxable estate and allow for controlled distribution. It is important that the trust be drafted to comply with applicable tax rules and that transfers respect timing provisions that can affect estate inclusion.
Establishing an ILIT typically involves drafting the trust document, selecting a trustee, transferring policy ownership or purchasing a new trust-owned policy, and implementing a funding plan to cover premiums. The trust should include provisions governing distributions, trustee powers, successor trustee appointment, and coordination with other estate planning instruments. Attention to gift tax rules, valuation of policy transfers, and the three-year rule for transfers made before death is necessary. Communicating the plan to family or successors can help prevent misunderstandings and ensure the trustee can administer the trust effectively when needed.
Understanding specialized terms makes it easier to evaluate ILIT options. This glossary highlights common phrases you’ll encounter when discussing trusts and life insurance planning so you can make informed decisions and communicate clearly with advisors. Definitions focus on how ownership, beneficiary designations, and taxation interact with trust documents, and explain trustee responsibilities along with common planning techniques used to preserve value and control distributions. Learning these terms helps reduce confusion and supports better coordination among attorneys, financial advisors, and insurance carriers.
The grantor is the person who creates the trust and transfers assets into it. In the context of an ILIT, the grantor establishes the trust document and either transfers an existing policy into the trust or directs the trust to purchase a policy. After transfers, the trust owns the policy for estate planning purposes. The grantor typically funds the trust with amounts sufficient to pay premiums, subject to tax rules. Clarity about the grantor’s intentions helps the trustee administer the trust in accordance with the decedent’s wishes and the trust’s distribution provisions.
Irrevocable means that the trust cannot be revoked or unilaterally changed by the grantor after it has been properly executed and funded, except as the document permits or by court order in limited circumstances. This permanence is what enables the potential estate tax benefits of an ILIT because the grantor no longer legally controls the policy once transferred. The irrevocable nature requires careful planning before transfer to ensure the trust’s terms align with the grantor’s long-term objectives for distribution, management, and taxation.
The trustee is the person or institution appointed to manage the trust’s assets and carry out its terms. For an ILIT, the trustee holds the life insurance policy, handles premium payments, and exercises discretion over distributions as authorized by the trust document. Duties include investment oversight, recordkeeping, tax filings when necessary, and communicating with beneficiaries. Choosing a trustee who can handle administrative responsibilities and who understands the grantor’s intentions is a central decision in ILIT planning.
A Crummey power is a temporary right given to beneficiaries to withdraw gifts made to a trust, typically used to qualify contributions for the annual gift tax exclusion. In an ILIT, beneficiaries are often given limited withdrawal rights when premium-funding gifts are made, converting those gifts into present-interest gifts eligible for exclusion. Proper notice and procedural compliance are necessary to preserve the exclusion. A well-drafted ILIT addresses how Crummey notices will be provided and how withdrawal rights are administered to avoid unintended tax consequences.
An ILIT offers distinct benefits compared with leaving policies directly to beneficiaries or holding policies in a revocable trust. Policies owned outright may be included in the grantor’s estate for tax purposes, while an ILIT can remove proceeds from the estate if properly structured. A revocable trust does not usually provide the same estate tax exclusion because the grantor retains control. Other options such as payable-on-death designations or naming custodians may offer simplicity but lack the control and protection an ILIT provides. The best choice depends on tax exposure, family needs, and desired distribution controls.
For households with minimal estate tax exposure or when the death benefit is modest relative to total assets, maintaining policy ownership outside of an ILIT can be reasonable. In those circumstances, the administrative complexity and irrevocability of an ILIT may outweigh potential tax benefits. Beneficiaries can receive proceeds directly with fewer administrative steps, and coordination with a simple will or revocable trust may suffice. A careful review of overall asset levels and likely estate tax thresholds helps determine whether a full ILIT is warranted or if streamlined ownership and beneficiary arrangements are acceptable.
Some clients prefer to retain the ability to change policy ownership or beneficiaries over time, a choice that is incompatible with an irrevocable structure. If maintaining flexibility to amend beneficiaries, adjust coverage, or change premium payment responsibility is a priority, keeping policies outside of an ILIT preserves those options. The grantor remains free to adapt their plan as circumstances evolve. However, this choice should be balanced against potential estate inclusion and taxation risks, and is selected when estate planning priorities favor adaptability over removal of proceeds from the taxable estate.
A comprehensive planning approach helps secure the intended tax and distribution outcomes of an ILIT by coordinating trusts, wills, beneficiary designations, and asset titling. Mistakes in drafting, improper funding, or failure to follow notice requirements can inadvertently negate estate tax benefits. Thorough planning addresses timing rules, documents premium funding strategies correctly, and sets procedures for trustee administration. For households where preserving policy value for heirs is a priority, detailed planning provides clarity and reduces the risk that administrative or drafting errors will undermine the expected outcomes.
When family circumstances involve blended families, special needs beneficiaries, business interests, or creditor concerns, a comprehensive legal strategy ensures that life insurance proceeds are used as intended and that plans do not create unintended conflicts. Trust provisions can restrict distributions, provide for education or health needs, and preserve assets from claims. Integrating ILIT planning with other trust arrangements, such as special needs trusts or family trusts, allows for tailored solutions that reflect both financial complexities and personal family dynamics, reducing the chance of disputes after the grantor’s death.
A comprehensive ILIT plan can enhance protection, liquidity, and control for beneficiaries by ensuring life insurance proceeds are held and distributed according to the grantor’s wishes. Coordinated planning reduces the risk of estate tax, clarifies trustee duties, and establishes mechanisms for managing proceeds responsibly. It also provides continuity for beneficiaries who may be unfamiliar with managing significant sums. When an ILIT is integrated with wills, powers of attorney, and other trusts, the overall estate plan becomes more robust and better able to withstand legal scrutiny or family disputes.
In addition to tax and distribution benefits, a well-drafted ILIT can bolster creditor protection for trust proceeds and set out strategies for long-term preservation of family wealth. Trustees are empowered to invest conservatively, make distributions aligned with stated purposes, and use trustee powers to respond to changing circumstances. Clear instructions about successor trustees and trust administration minimize disruption if the initial trustee is unable to serve. Taken together, these features offer families greater certainty that life insurance proceeds will serve the needs the grantor intended over the long term.
One of the primary advantages of an ILIT is potential reduction of estate tax liability by keeping insurance proceeds outside the grantor’s gross estate. This separation creates liquidity for paying taxes, debts, or funding buy-sell obligations without forcing sale of illiquid assets. When coordinated with business succession planning or other estate structures, an ILIT can be part of a broader strategy that ensures heirs receive intended value. Proper administration of the trust through careful funding and compliance with timing rules preserves the intended tax benefits.
An ILIT allows the grantor to impose conditions or schedules for distributions, protecting proceeds from beneficiaries’ creditors or from mismanagement. Trust provisions can require the trustee to make distributions for specified purposes such as education, health expenses, or support, thereby aligning use of funds with the grantor’s objectives. This structure can be especially valuable when beneficiaries are young, have special needs, or face potential creditor exposure. Thoughtful distribution rules preserve assets for long-term family benefit while providing necessary flexibility for the trustee to respond to changing circumstances.
Confirm that policy ownership and beneficiary designations align with the ILIT strategy. If a policy is transferred into an ILIT, ensure the carrier records the trust as owner and the trust document is provided when requested. Missteps in paperwork or failure to reassign ownership can lead to unintended estate inclusion. Communicate with the trustee and the insurance company ahead of time to confirm the procedural steps required, and document each transfer carefully. Doing this prevents confusion later and helps preserve the tax and distribution objectives you intended when creating the trust.
Choose a trustee who is capable of managing premium payments, maintaining accurate records, coordinating with financial or tax advisors, and communicating with beneficiaries. Whether selecting an individual family member or a corporate trustee, consider the administrative burden and the trustee’s willingness to act. Provide clear trust language regarding trustee powers and successor appointments to ensure continuity. Regular reviews of the trust’s operation and an orientation for the trustee can make administration smoother and reduce the chance of disputes or missed premium payments that could jeopardize the policy.
Consider an ILIT if you want to preserve life insurance proceeds for heirs while minimizing estate inclusion, provide liquidity to pay estate obligations, or control how proceeds are used over time. Families with substantial life insurance relative to estate assets, business owners requiring buy-sell funding, or those with beneficiaries who need protection from creditors may benefit from the structure an ILIT provides. The trust can also facilitate intergenerational planning by setting distribution terms that reflect your long-term financial and family goals, offering discipline and protection beyond a simple beneficiary designation.
An ILIT is also worth considering when coordinating with other estate planning tools such as revocable trusts, wills, and powers of attorney. It can be part of a holistic plan for wealth preservation, liquidity, and orderly succession. Additionally, if you anticipate changes in asset composition over time or want to remove life insurance proceeds from probate, an ILIT can help accomplish those objectives. Engaging in early planning provides greater flexibility to structure the trust to account for anticipated family needs and changing tax or legal circumstances.
Common circumstances that prompt consideration of an ILIT include significant life insurance coverage on the life of a primary owner, business succession concerns that require liquidity, blended family planning where distribution control is important, and the need to protect proceeds from creditor claims. Families with special needs beneficiaries who require careful distribution can benefit from trust-based controls. Each situation calls for a tailored trust design that addresses the unique distribution, tax, and administrative needs of the family and the insurance arrangement.
When business owners need funds to satisfy buy-sell agreements, pay estate taxes, or facilitate smooth transitions, an ILIT can provide the liquidity necessary at death without forcing sale of business assets. Trust-owned life insurance proceeds can be structured to fund agreements with business partners or to ensure heirs receive value while operations continue. Drafting should consider how the policy aligns with existing business documents and whether the trustee has instructions to coordinate with business advisors to meet succession planning objectives effectively.
When the death benefit on life insurance is large compared with other estate assets, those proceeds can inadvertently increase estate tax exposure if not removed by proper planning. An ILIT is commonly used in these situations to exclude the proceeds from the gross estate and to structure distributions for beneficiaries. Funding and transfer timing are important to achieve the desired tax treatment, and the trust should be drafted to address how remaining assets and potential tax liabilities will be coordinated after the grantor’s death.
If there is concern that beneficiaries may face creditor claims, divorce, or poor financial decisions, an ILIT can create protective distribution mechanisms. Trust provisions can limit direct access to funds, provide discretionary distribution standards, or establish payout schedules to minimize the risk of dissipation. For families with minors, those with special needs, or beneficiaries in vulnerable financial situations, the ILIT structure offers a way to ensure proceeds are preserved for intended purposes and managed by a responsible trustee over time.
Serving Marina del Rey and surrounding Los Angeles County communities, the Law Offices of Robert P. Bergman helps clients navigate local and state considerations that affect ILIT planning. We discuss California-specific rules, coordinate with local financial institutions and insurance carriers, and ensure trust documents are enforceable under state law. Whether your residence is in Marina del Rey or elsewhere in the region, local knowledge of probate practices, community property rules, and regional financial concerns informs practical trust design and administration tailored to your needs.
The Law Offices of Robert P. Bergman provides clear, client-focused estate planning services that address the legal and administrative steps needed to establish an ILIT. We emphasize practical drafting and coordination with insurance carriers, financial advisors, and trustees so policies are funded and documented correctly. Our approach includes reviewing beneficiary designations, advising on premium funding strategies, and preparing trust language that aligns with client objectives. The firm’s goal is to make the process understandable and to provide durable solutions that reflect each client’s family and financial priorities.
Clients receive assistance with trustee selection and preparing the trust for efficient administration, including templates for required notices and recordkeeping practices. We also help ensure the trust’s provisions are integrated with wills, powers of attorney, and other estate documents so that the overall plan operates smoothly at the time of need. The focus is on minimizing future disputes and ensuring that trustees have the guidance and authority necessary to act in accordance with the grantor’s intentions while complying with legal obligations.
We work with clients to anticipate likely scenarios and prepare trust provisions that offer flexible but controlled options for distributions, successor trustee appointment, and coordination with other planning tools. Our team helps clients weigh the trade-offs involved in irrevocable planning, clarifies the consequences of transfer timing, and provides practical strategies to maintain the intended benefits. Clear drafting and careful implementation reduce the chance of unintended tax or administrative outcomes and support predictable administration for beneficiaries.
Our process begins with a thorough consultation to learn about family circumstances, policy holdings, and objectives for distribution and taxation. We review existing insurance policies, beneficiary designations, and estate documents to determine whether an ILIT is appropriate. After agreement on a strategy, we draft and execute the trust documents, coordinate policy transfers or purchases, and provide guidance for funding premiums. We also prepare notice templates, assist with trust administration start-up, and explain successor trustee procedures so the ILIT functions smoothly when needed.
The first step involves gathering information about existing policies, estate composition, family needs, and planning objectives. We review beneficiary designations, policy ownership, and any existing trusts or wills to identify how an ILIT would fit into the overall plan. This stage clarifies whether transferring a policy or creating a trust-owned policy best meets your goals, and it highlights timing or tax considerations that may affect the result. Clear documentation of current arrangements allows us to recommend practical next steps.
We examine each life insurance policy to determine ownership, beneficiary designations, surrender values, and potential tax implications of transfer. This analysis helps identify whether to transfer an existing policy into the ILIT or to have the ILIT purchase a new policy. We also examine contractual terms and carrier requirements, noting any consent or assignment procedures required by the insurer. Understanding these details up front reduces the risk of administrative issues when transferring ownership to the trust.
We evaluate how an ILIT would affect estate tax exposure and coordinate with other planning tools such as revocable trusts, wills, and powers of attorney. The review addresses gift tax considerations, the three-year inclusion rule, and how premium funding will be structured to utilize exclusions or exemptions. This step provides a realistic assessment of expected benefits and any trade-offs associated with irrevocability. Clear guidance on timing and documentation supports informed decision-making before moving ahead with trust formation.
Once the strategy is set, we prepare the ILIT document tailored to your goals, specifying trustee powers, distribution standards, and procedures for premium funding and notices. We coordinate with the insurance carrier to effect transfers or to arrange for a trust-owned new policy purchase. At this stage, we also assist with beneficiary notices, Crummey procedures if applicable, and recordkeeping to support the intended tax treatment. The trust is drafted to be clear, enforceable, and compatible with related estate documents.
The trust document sets out the grantor’s instructions for policy ownership, trustee powers, distribution terms, successor trustees, and procedures for premium funding. Attention is paid to language that preserves the intended tax treatment and provides flexibility for administration. Clear drafting minimizes ambiguity that could lead to disputes or tax challenges, and we include provisions addressing common administrative issues such as notice procedures, recordkeeping, and trustee compensation when appropriate. The result is a practical document that guides trustee decisions.
We work with the insurance company to complete ownership transfers or to arrange policy issuance in the name of the trust. This often requires carrier forms, signature documentation, and sometimes beneficiary consents. Ensuring proper filing with the carrier prevents administrative delays and helps avoid unintended estate inclusion. We also advise on premium funding logistics and coordinate with financial advisors so the trust has the means to maintain coverage without interruption.
After formation and transfer, the ILIT requires ongoing attention to funding premium payments, delivering any required Crummey notices, maintaining records, and preparing for trustee succession. We provide templates and guidance for annual funding and notices, and advise trustees on responsibilities such as paying premiums, tracking gifts, and handling distributions at death. Regular reviews help confirm the trust remains aligned with financial changes and family circumstances so the ILIT continues to operate as intended.
Trust administration includes making or receiving gifts to cover premiums, documenting those gifts, and issuing withdrawal notices if Crummey powers are used. Accurate records of deposits, notices, and communications with beneficiaries are important for supporting tax positions and for trustee accountability. Establishing a routine for annual funding prevents lapses in coverage and helps the trustee demonstrate compliance with the trust’s terms and applicable tax rules in the future.
When the insured dies and the policy pays out, the trustee’s role is to receive proceeds, settle any trust expenses or obligations, and distribute funds according to the trust’s provisions. The trustee must also handle any necessary filings and communicate with beneficiaries about distribution timing and conditions. Clear trust language regarding payout procedures, investment of proceeds, and distribution standards streamlines administration and reduces the likelihood of disputes or confusion among heirs during what is often a difficult period.
An irrevocable life insurance trust is a trust that owns a life insurance policy, with the trust named as owner and typically as beneficiary. The grantor creates the trust and transfers the policy into it or arranges for the trust to purchase a policy. Because the trust owns the policy once the transfer is complete and the grantor gives up control, the policy proceeds may be excluded from the grantor’s estate for estate tax purposes when the necessary timing and documentation requirements are satisfied. The trustee manages the policy, pays premiums, and distributes proceeds according to the trust terms. Setting up an ILIT involves drafting a trust agreement, naming a trustee and beneficiaries, coordinating with the insurance carrier, and establishing a funding plan for premiums. When gifts are made to the trust to cover premiums, procedural steps such as providing withdrawal notices may be used to qualify those gifts for annual gift tax exclusions. Proper administration and recordkeeping are essential to preserve the intended tax and distribution outcomes and to ensure that the trustee can manage the trust consistently with the grantor’s objectives.
Yes, transferring a policy into an ILIT can reduce estate tax exposure because the policy proceeds are generally not included in the grantor’s gross estate if the trust is properly structured and the timing rules are satisfied. This is accomplished by removing ownership and incidents of ownership from the grantor. However, transfers made within a specified lookback period prior to death may be included in the estate, so timing and documentation are important to achieve the intended tax treatment. Alongside timing considerations, the trust must be administered according to its terms and tax rules for gifts and exclusions must be followed. Proper funding strategies, such as using annual gift exclusions and issuing necessary notices, help avoid unintended inclusion or gift tax consequences. A thorough review of your overall estate plan and asset levels determines whether the expected tax benefits justify the irrevocable nature of the trust.
The three-year rule refers to a lookback period under federal tax law where transfers of life insurance ownership by the deceased within three years of death may be included in the decedent’s gross estate for estate tax purposes. This rule can negate the intended estate tax exclusion if transfers are made too close to death. For this reason, planning ahead and understanding the timing of transfers is essential when creating an ILIT to secure the intended benefits. When transfers occur within the lookback window, the transferred policy proceeds can be pulled back into the taxable estate, which may result in unexpected tax liability. To avoid this outcome, clients often transfer policies to an ILIT well before the three-year period or arrange for the ILIT to purchase a policy directly. Proper documentation and consultation regarding timing help ensure the trust’s plan is effective at the time of death.
A trustee should be someone or an institution capable of managing the trust’s administrative and financial responsibilities, including paying premiums, maintaining records, and communicating with beneficiaries. Many clients choose a trusted family member, trusted friend, or a corporate fiduciary depending on complexity, potential conflicts of interest, and administrative workload. The trustee’s willingness and ability to perform these duties should be considered carefully at the time the trust is created. Trust documents should provide clear direction on trustee powers, successor appointment, and guidelines for distributions so the trustee can act decisively and in line with the grantor’s wishes. If the trust will be managing substantial sums or interacting frequently with financial professionals, a corporate trustee or co-trustee arrangement may provide continuity and professional administrative support over time.
Premium payments for a trust-owned policy are typically funded by gifts from the grantor to the trust. These gifts can be structured to take advantage of annual gift tax exclusions by providing beneficiaries with withdrawal rights for a short period, commonly known as Crummey powers. Proper notice procedures and documentation are important to substantiate the present-interest nature of the gift and preserve the annual exclusion. Alternative funding approaches include setting up separate bank accounts for the trust, having the trust receive contributions from other sources, or coordinating with an existing estate plan to ensure sustainable funding. The trust should include clear instructions for premium funding and recordkeeping to help trustees manage payments without interruption, protecting the policy from lapse and preserving the intended benefits.
Crummey powers are temporary withdrawal rights granted to beneficiaries when gifts are made to an irrevocable trust. They serve the purpose of converting certain gifts into present-interest gifts that qualify for the annual gift tax exclusion. In practice, beneficiaries are given notice of their limited ability to withdraw contributions for a short period, and if they do not exercise that right, the funds remain in the trust for the trustee to manage. Issuing proper notices and maintaining records of those communications is important to preserve the exclusion and avoid tax disputes. The trust document should set out how notices are provided, how long withdrawal windows last, and what procedures are followed annually when gifts are made for premium payments. Consistent administration reduces uncertainty for trustees and beneficiaries.
An ILIT can offer protection from beneficiaries’ creditors by holding proceeds within a trust structure rather than passing funds directly to beneficiaries. When the trust holds and distributes proceeds according to set terms, the assets can be shielded from certain claims that might otherwise attach to funds inherited outright. The degree of protection depends on trust provisions, timing, and applicable state law, so careful drafting is necessary to achieve intended protective effects. Trustee-controlled distributions can further guard assets by releasing funds only for specified purposes or under conditions designed to preserve assets. This approach helps families ensure that proceeds serve long-term needs rather than being subject to immediate claims or dissipated through hazardous financial decisions. A trust’s protective quality is enhanced by clear distribution standards and prudent trustee powers.
Transferring an existing policy into an ILIT typically requires preparing an assignment of ownership or similar documentation that the insurance carrier will accept. The process includes executing the trust, completing carrier forms to change ownership and beneficiary designations, and ensuring all required signatures and consents are obtained. It is important to confirm whether the carrier requires additional documentation and to update policy records so the trust is recognized as owner. Before transferring ownership, review policy terms to assess any effect on in-force guarantees or contestability provisions. Also consider gift tax implications and the three-year lookback period. Coordinating with the carrier and documenting each step ensures the transfer proceeds smoothly and preserves the intended estate planning result.
If premiums are not paid and the policy lapses, the trust may lose the intended coverage and the associated estate planning benefits. Trustees should prioritize premium payments and maintain reliable funding sources to prevent lapse. When funds are tight, trustees may have limited options depending on policy features, such as surrender values or available loans, but such actions may have tax or economic consequences that should be evaluated carefully. To avoid lapse, grantors and trustees should establish clear funding procedures, maintain reserves or bank accounts for premium payments, and set up reminders or payment plans with carriers. Regular reviews of trust finances and policy status help ensure continuity of coverage and protect the plan’s objectives from administrative failure or oversight.
An ILIT should be coordinated with wills, powers of attorney, and other trust arrangements so that all parts of the estate plan work together. The ILIT typically focuses on life insurance ownership and distribution, while other documents address asset distribution, incapacity planning, and financial decision-making. Clear cross-references and consistent beneficiary designations prevent conflicts and ensure the grantor’s overall intentions are executed smoothly at the appropriate times. Coordination also involves considering tax positions and timing rules across documents and setting up procedures for trustee communications and successor appointments. Regular reviews of the entire estate plan, especially after major life changes, confirm that the ILIT and related documents remain aligned with the client’s goals and current circumstances.
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