An Irrevocable Life Insurance Trust (ILIT) can play an important role in careful estate planning for individuals and families in Sherman Oaks and greater Los Angeles County. An ILIT is designed to hold life insurance policies outside of a taxable estate so that proceeds can pass to beneficiaries in a manner that reduces potential estate tax exposure and provides liquidity for settling final costs. This guide explains what an ILIT does, who may benefit, and how the Law Offices of Robert P. Bergman approaches trust drafting and funding for residents of Sherman Oaks and nearby communities in California.
Choosing whether to create an ILIT involves evaluating family needs, existing assets, and long-term planning goals. An ILIT can help preserve estate value, support heirs with immediate funds at death, and protect policy proceeds from certain creditor claims. The process typically includes preparing trust documents, naming a trustee, and transferring ownership or designating the trust as beneficiary of a policy. Our firm assists clients with these steps while coordinating with financial advisors and insurance carriers to confirm that the trust language and administration align with each client’s objectives and California legal requirements.
An ILIT provides several practical benefits for many families, including keeping life insurance proceeds out of the taxable estate, supplying liquidity to pay estate settlement costs, and creating a controlled distribution mechanism for beneficiaries. It can reduce the need to sell assets to cover taxes or final expenses, and it can be structured to support successors in a way that reflects the grantor’s wishes. In California, trusts must be carefully drafted and funded to achieve these results, and an ILIT can be tailored to address special family circumstances like blended families, beneficiaries with special needs, or those who require protections against creditors.
The Law Offices of Robert P. Bergman focuses on estate planning services for individuals and families in Sherman Oaks and throughout Los Angeles County. Our approach centers on clear communication and practical planning that fits each client’s situation. We help clients select trust terms, identify appropriate trustees, and coordinate transfers and beneficiary designations. Our office handles the full scope of documents commonly used in California estate plans, including revocable living trusts, pour-over wills, powers of attorney, healthcare directives, and trust-related petitions, delivering thoughtful legal guidance and thorough document preparation for clients at every stage of planning.
An Irrevocable Life Insurance Trust is a separate legal entity created to own life insurance policies and receive their proceeds outside the grantor’s taxable estate. Once a trust is executed and the policy ownership transferred to it, the grantor typically cannot revoke those actions, which is why careful planning and clear trust language are important. The trustee administers the policy, pays premiums when necessary, and distributes proceeds according to the trust terms. In California, proper funding and timing are essential, and an ILIT must be established and funded with appropriate documentation to achieve the intended tax and asset protection outcomes.
Setting up an ILIT generally involves drafting trust documents that comply with state law and with the client’s objectives, selecting a trustee to manage the policy and trust assets, and then transferring ownership of existing policies or arranging new policies owned by the trust. The grantor may provide gift funding to the trust to pay premiums or the trustee may use other available resources. Because the trust is irrevocable, the grantor gives up certain controls in exchange for the estate planning and creditor-related benefits the structure can provide, so comprehensive analysis and coordination with financial advisors is recommended.
An ILIT is a trust that owns and controls life insurance policies and prevents policy death benefits from being included in the grantor’s taxable estate. The trust document sets out how proceeds should be managed and distributed, and it appoints a trustee to carry out those instructions. Because ownership of a life insurance policy is transferred to the trust, the trust’s terms determine who receives the proceeds, how and when distributions are made, and any conditions for distribution. An ILIT is irrevocable, meaning the grantor generally cannot change or revoke the trust after funding, so precision in drafting is important to meet planning objectives.
Core elements of an ILIT include the trust agreement, the selection of a trustee, the method of funding the trust, and clear beneficiary designations. Establishing an ILIT typically requires executing the trust document, transferring existing policies or arranging new policies to be owned by the trust, and implementing a plan to fund premium payments. Administrative processes include maintaining accurate records, coordinating with insurance carriers, and following gift tax rules when the grantor contributes premium funds. Periodic reviews are also advisable to confirm that the trust continues to reflect the grantor’s goals and that any changes in tax law or family circumstances are addressed.
Understanding the terms associated with an ILIT helps clients make informed decisions. Important items include policy ownership transfer, grantor, trustee, beneficiary, Crummey powers for gift withdrawal notices, and the three-year lookback rule that can affect inclusion of proceeds in the estate. This section provides plain-language definitions of these and other terms, with a focus on how they operate under California law. Familiarity with these concepts supports practical decision-making about trust structure and the administration of life insurance within an estate plan.
The grantor is the person who creates and funds the trust, typically the insured individual. The grantor sets the trust terms and may transfer ownership of a life insurance policy into the trust. Once the trust is irrevocable and the policy is transferred, the grantor generally gives up control over the policy and trust assets. Understanding the rights and limitations of the grantor under California law is important when weighing the benefits of an ILIT and determining how to structure premium payments and beneficiary designations.
The trustee is the person or entity appointed to manage the trust’s assets, pay premiums when appropriate, and distribute proceeds according to the trust terms. Trustees have fiduciary duties to act in the best interest of beneficiaries, manage trust property prudently, and provide accounting as required. Selecting a trustee with the ability to handle administrative duties, coordinate with insurance companies, and follow the grantor’s instructions in a manner consistent with California trust law is an important decision in ILIT planning.
A beneficiary is an individual or entity designated to receive trust distributions or life insurance proceeds when the insured dies. The trust document specifies who the beneficiaries are and under what circumstances distributions occur. Beneficiaries might receive outright payments, staged distributions, or instructions that preserve assets for future generations. Clarity in beneficiary designations helps avoid disputes and ensures the grantor’s intentions are carried out under the terms of the ILIT.
Gift tax considerations and the IRS three-year lookback rule affect ILIT planning. If the grantor transfers an existing policy to the trust within three years of death, proceeds may still be included in the estate for tax purposes. Proper planning addresses these timing rules, funding strategies, and any annual gift tax exclusion uses. Trustees and grantors must track contributions and maintain documentation to support tax treatment and compliance with federal and California regulations.
When evaluating ILIT options, clients may weigh a limited approach against a comprehensive estate plan that incorporates the ILIT into a broader trust structure. A limited approach may address a single policy or a narrow objective, while a comprehensive approach integrates life insurance with revocable trusts, wills, powers of attorney, and healthcare directives to produce coordinated results. Each path has trade-offs in cost, administrative complexity, and long-term flexibility. A careful review of family dynamics, asset composition, and estate tax exposure helps determine which option best fits a given situation in Sherman Oaks and throughout California.
A limited ILIT approach can be suitable when the primary objective is to keep the proceeds of a single life insurance policy out of the taxable estate or to provide liquidity for estate settlement costs. This approach often involves less initial drafting and may be appropriate for clients with straightforward asset profiles or those who primarily seek to secure funds for taxes, debts, or final expenses. Even in limited cases, careful documentation and trustee selection remain important to ensure the trust functions as intended under California law and aligns with beneficiary goals.
Some clients prefer a limited ILIT because it reduces complexity and initial costs when compared with a larger integrated estate plan. For those whose primary concern is a single policy or who require only a modest degree of estate planning, a focused ILIT can achieve specific objectives without the time and expense associated with a fully comprehensive arrangement. That said, simplicity must be balanced against future needs, and periodic review is advisable to confirm the trust remains suitable as family circumstances and asset values evolve.
A comprehensive estate planning approach is often recommended when clients have multiple assets, business interests, or complex family relationships that require coordinated planning. Integrating an ILIT with revocable trusts, wills, guardianship nominations, and other planning tools helps create consistent instructions for disposition, minimizes the potential for unintended tax consequences, and supports long-term goals such as preserving wealth for future generations. This holistic perspective reduces the chance of conflicting documents and helps ensure that life insurance proceeds work together with other estate plan elements.
Comprehensive planning provides flexibility to address evolving circumstances and can incorporate strategies for creditor protection, incapacity planning, and care for vulnerable beneficiaries. While an ILIT is inherently irrevocable, pairing it with other trusts and legal documents creates a broader framework to manage changes over time. This approach helps reduce administrative friction, coordinates beneficiary protections, and supports the orderly transition of assets. Clients with significant estates or ongoing financial obligations often benefit from this integrated planning approach to manage future risks.
A comprehensive estate plan that includes an ILIT delivers enhanced coordination across documents and avoids gaps that can arise from piecemeal planning. When life insurance ownership, beneficiary designations, and trust distribution provisions are aligned with a revocable living trust and other estate documents, the overall plan functions more smoothly. This integration helps preserve estate value, reduces the likelihood of disputes, and ensures that beneficiaries receive clear instructions for distributions, management of assets, and access to funds needed for taxes and final expenses.
Combining an ILIT with additional planning tools provides continuity in the event of incapacity, death, or family changes. It allows for structured distributions to protect younger or financially inexperienced beneficiaries while still providing funds promptly for necessary expenses. A coordinated plan also helps anticipate and address potential tax liabilities, creditor claims, or administrative burdens that could otherwise erode estate value. Overall, a comprehensive approach supports long-term family goals and reduces the chance of unintended outcomes when life insurance proceeds are part of a larger wealth transfer strategy.
Coordinating an ILIT with other estate planning documents minimizes conflicting instructions and increases the clarity of how assets and insurance proceeds will be managed and distributed. Clear drafting reduces administrative delays, supports trustee decision-making, and helps beneficiaries understand the plan’s intent. This coordination is particularly valuable for families with multiple accounts, properties, or business interests where consistent guidance from trust documents can prevent disputes and simplify estate settlement in California’s legal environment.
A comprehensive plan that features an ILIT alongside trusts and wills can provide a stronger framework for protecting assets and managing potential tax exposure. While an ILIT helps keep insurance proceeds out of the estate, accompanying documents and strategies can address other sources of risk, such as creditor claims or future estate tax concerns. Careful drafting and regular review help make the most of available planning opportunities under current law, aiming to preserve estate value for intended beneficiaries and reduce the administrative burdens on heirs.
When creating an ILIT, establish a clear method for funding premium payments and document all transfers carefully. Regularly record gifts to the trust and, when applicable, use annual gifting strategies to avoid unexpected tax consequences. Keep precise records of payments made to the trustee and any instructions given. Coordination with your insurance carrier is important to confirm transfers of ownership and beneficiary designations are processed correctly. Thoughtful documentation reduces administrative friction and helps support the intended tax treatment of policy proceeds under federal and California rules.
Estate planning is an ongoing process, and ILITs are no exception. Periodically review the trust terms, beneficiary designations, and premium funding arrangements to confirm they reflect current circumstances and objectives. Life events such as marriage, divorce, births, or changes in asset values can affect planning needs. Regular reviews also address changes in tax law or insurance markets that may impact the effectiveness of an ILIT. Updating documents when necessary ensures the trust continues to operate in harmony with the broader estate plan.
An ILIT may be appropriate for individuals who wish to reduce potential estate tax exposure, provide liquidity for settling an estate, or structure how life insurance proceeds are distributed to heirs. It is commonly used by those who own significant life insurance, have illiquid assets such as real estate or business interests, or want to ensure that beneficiaries receive funds in a controlled manner. In addition, an ILIT can complement other estate planning tools to provide a cohesive plan that addresses incapacity, guardianship nominations, and transfer of wealth across generations in California.
Clients often consider an ILIT when they seek to protect policy proceeds from estate inclusion and to establish a trustee-managed mechanism for distributions. The structure can help prevent the forced sale of property to cover tax liabilities and allows for planning around family dynamics and beneficiary needs. While the trust is irrevocable, its benefits for preserving estate value and providing for heirs can make it a valuable part of a comprehensive plan, especially for those with substantial life insurance holdings or complex asset portfolios in Sherman Oaks and across Los Angeles County.
Typical circumstances that lead individuals to establish an ILIT include owning large life insurance policies, having estates that may face estate or inheritance taxes, operating a business that will require liquidity at death, or wanting to protect proceeds for minor or vulnerable beneficiaries. An ILIT can also be useful for clients who want to separate life insurance proceeds from probate or from general estate assets. Each situation requires careful review to determine whether an ILIT aligns with the overall estate planning goals and family considerations under California law.
Individuals who own substantial life insurance policies often use an ILIT to keep policy proceeds out of their taxable estate and to reduce potential estate tax consequences. This is especially relevant when the total value of the estate approaches thresholds that may trigger federal estate tax considerations. By transferring ownership to a properly structured trust, policy proceeds can pass to beneficiaries under the trust’s terms while helping to preserve other estate assets from being used for taxes or immediate liabilities.
An ILIT provides liquidity to cover estate settlement costs, taxes, funeral expenses, and debts that arise at death, allowing other estate assets to remain intact. This can be particularly valuable for estates with illiquid assets such as real property or closely held business interests. Having funds available through an ILIT can prevent the need to sell assets quickly and can give beneficiaries time to consider disposition options while meeting immediate financial obligations.
When beneficiaries are minors, have special needs, or are otherwise in a position where direct distributions might not serve their long-term interests, an ILIT can structure distributions to provide ongoing support while limiting direct access to large sums. Trust terms can specify staged distributions, require trustee oversight, or set conditions for use of funds to help ensure that proceeds are used for the beneficiaries’ needs. Properly drafted provisions and trustee selection help safeguard funds and provide a framework for responsible management.
The Law Offices of Robert P. Bergman serves clients in Sherman Oaks and throughout Los Angeles County, offering estate planning services tailored to local needs and California law. We assist with trust drafting, transfer of insurance ownership, coordination with insurance companies, and administration guidance for trustees. Clients receive clear explanations about timing, gift tax implications, and the interactions between an ILIT and other estate planning instruments, along with practical help for updating documents and implementing funding strategies that reflect each family’s circumstances.
The Law Offices of Robert P. Bergman focuses on personalized estate planning services for individuals and families in Sherman Oaks and the surrounding areas. We guide clients through the steps required to establish and fund an ILIT, coordinate with insurance carriers, and prepare supporting documents such as trust certifications and pour-over wills. Our approach emphasizes clear communication, timely document delivery, and careful attention to detail to help clients implement plans that meet their goals under California law.
Our firm handles the full range of estate planning documents commonly used in conjunction with an ILIT, including revocable living trusts, advance health care directives, powers of attorney, and guardianship nominations. We work to ensure that trust terms are consistent with beneficiary designations and that all administrative steps are taken to effect transfers properly. Clients benefit from practical guidance on funding strategies, trustee responsibilities, and maintaining required notices and records to support the intended treatment of policy proceeds.
We assist clients at each stage, from initial planning conversations through trust execution and funding, and provide ongoing support for updates as life circumstances change. Our office helps families evaluate trade-offs, clarify objectives, and coordinate the technical elements needed to make an ILIT effective. For Sherman Oaks residents and those across Los Angeles County, this hands-on support aims to reduce administrative uncertainty and help preserve estate value for intended beneficiaries.
Our process begins with a detailed intake to understand family dynamics, insurance holdings, and broader estate goals. We then draft trust documents tailored to the client’s objectives, coordinate transfers or new policy ownership arrangements, and prepare any supporting documents such as gift allocations or Crummey notices when applicable. We communicate with insurance carriers to confirm ownership changes and assist trustees with administrative requirements. Finally, we recommend periodic reviews to keep the plan current with life changes and legal developments in California.
Step one involves an in-depth review of existing policies, overall net worth, beneficiary designations, and client goals. We identify the policy or policies to be placed in the trust and discuss trustee selection and distribution terms. After that review, we draft the trust document to reflect the client’s intentions and California trust law. This phase also includes planning for premium funding and any necessary notices to preserve gift tax treatment, ensuring the documents are ready for execution and funding.
We assess life insurance contracts, policy ownership, and beneficiary designations to determine whether transfer to an ILIT is appropriate. This review includes evaluating any surrender charges, incontestability clauses, and potential tax implications. Coordinating with financial advisors and insurance carriers at this stage helps identify administrative steps needed to change ownership and confirm that funding plans will sustain premium payments without unintended tax consequences.
After reviewing the client’s situation, we draft trust provisions to specify trustee powers, distribution timing, and any conditions for release of funds. The drafting step also outlines how premiums will be funded, whether through annual gifts, direct contributions, or other mechanisms. Trust language is tailored to ensure that the trust functions properly as the owner and beneficiary of policies and that administration is manageable for the appointed trustee under California standards.
The second phase focuses on executing the trust documents, transferring ownership of policies into the trust, and implementing the chosen funding approach. We assist clients with completing carrier forms, verifying acceptance of transfers, and documenting gifts or payments used for premium funding. Proper timing and documentation are essential to achieve the intended tax and estate planning results, and we ensure that all steps are taken to align the trust structure with the client’s goals.
We coordinate directly with insurance carriers to process change-of-owner forms, beneficiary designations, and any necessary confirmations. Working with the carrier ensures the trust is recognized as the policy owner, that beneficiary designations are accurate, and that paperwork is filed correctly. This coordination helps to prevent administrative mistakes that could undermine the ILIT’s intended treatment and provides clear documentation of the trust’s ownership and the carrier’s acceptance of the changes.
During funding, we document gifts and any Crummey notices when applicable to preserve annual gift exclusion treatment. Accurate records of contributions used to pay premiums and of any notices to beneficiaries are maintained to support tax reporting and trust administration. This documentation assists trustees and beneficiaries in understanding the source of funds and helps protect the grantor’s intended treatment of premium contributions under federal and California rules.
After funding and transfer, the trustee administers the trust in accordance with its terms, maintains records, and ensures premiums are paid. Our firm provides guidance to trustees on required administrative tasks and can assist with trust amendments for ancillary planning where permitted. Periodic reviews are performed to confirm the ILIT continues to meet objectives, to update related estate planning documents, and to address any changes in family circumstances or applicable law that might affect administration or beneficiary outcomes.
Trustees are responsible for policy administration, premium payments, and communicating with beneficiaries as required. We advise trustees on best practices for recordkeeping, coordination with financial professionals, and maintaining compliance with trust terms. This support helps ensure trust administration proceeds smoothly and that beneficiaries receive distributions in accordance with the trust instructions, minimizing disputes and administrative delays during estate settlement in California.
Periodic review of the ILIT and related estate documents helps account for changes in assets, family situation, or tax law. We recommend scheduled check-ins to confirm premium funding remains adequate, beneficiary designations are current, and trust terms remain aligned with overall estate objectives. These reviews enable timely adjustments to other elements of the estate plan while preserving the irrevocable nature of the ILIT where appropriate and maintaining its intended benefits.
An Irrevocable Life Insurance Trust is a trust established to own life insurance policies so that policy proceeds are not included in the grantor’s taxable estate, subject to certain timing rules. The trust document names a trustee to manage the policy, collect proceeds, and distribute funds according to the trust terms. Once a policy is transferred and the trust is properly funded, the trustee administers the trust consistent with the grantor’s instructions and applicable laws in California. Setting up an ILIT includes drafting the trust agreement, transferring policy ownership to the trust, and establishing funding mechanisms for premium payments. Coordination with the insurance carrier is required to process ownership changes, and clear documentation of gifts or payments used for premiums is important. Because the trust is generally irrevocable, careful planning during creation helps ensure the trust achieves the intended tax and distribution objectives.
Transferring a policy into an ILIT can affect the grantor’s ability to use policy loans or access cash values, since ownership and control move to the trust. If borrowing against cash value is an important consideration, discuss alternative structures or funding plans before transferring ownership. Some clients prefer to secure liquidity arrangements prior to transfer or to maintain separate assets that can be used if borrowing becomes necessary. Trust terms and trustee selection influence how policy loans are handled after transfer. The trustee has authority to manage the policy and may be able to authorize loans depending on the trust document and the agreement with the insurance carrier. These issues should be addressed in advance to avoid unintended consequences for access to policy values and to ensure continuity of premium payments.
The IRS three-year lookback rule can bring policy proceeds back into the grantor’s estate if an existing policy is transferred to a trust within three years of the grantor’s death. This rule means that transferring a policy too close to death may undermine the estate tax benefits of an ILIT. Planning to transfer policies well in advance of expected life events, when feasible, helps avoid inclusion under this rule. When time is limited, other strategies may be considered, such as purchasing a new policy owned by the ILIT or using alternative planning techniques that reflect the client’s timeline and goals. Careful coordination with insurance carriers and timely documentation is necessary to manage these timing and tax considerations effectively.
An ILIT may offer a degree of protection for life insurance proceeds from certain creditor claims depending on jurisdiction and the circumstances involved. Because the trust holds ownership, proceeds distributed through trust terms can be better insulated than outright transfers in some situations. However, protections vary and are affected by the trust language, timing of transfers, and the nature of creditor claims or family law issues. In cases involving divorce, family law courts may consider trust distributions and beneficiary rights differently depending on state law and timing. For these reasons, tailored trust drafting and coordinated planning are essential to achieve desired protections, and it is important to evaluate potential risks and legal considerations specific to the client’s situation in California.
Choosing a trustee for an ILIT requires balancing administrative ability, impartiality, and continuity. A trustee should be someone who can manage premium payments, communicate with the insurance company, and make distributions consistent with the trust terms. Trusted family members sometimes serve as trustees, and in certain situations, a professional or corporate trustee may be selected for ongoing administrative duties. Considerations in trustee selection include the complexity of the trust, potential conflicts of interest, and the trustee’s willingness to serve. Naming successor trustees and providing clear instructions in the trust document helps ensure smooth administration and reduces the potential for disputes among beneficiaries.
Premiums for policies owned by an ILIT are typically funded by gifts from the grantor to the trust, or by trust assets if available. Annual gifting strategies and proper documentation of contributions help maintain favorable tax treatment. When gift tax exclusions are used, beneficiaries may receive Crummey notices to preserve the annual exclusion for gifts used to pay premiums. Trust terms should address whether the grantor will provide ongoing premium funding and how the trustee will handle payments. Clear funding plans and recordkeeping are essential to ensure premiums are paid timely, that the policy remains in force, and that beneficiaries understand how the funding process operates within the trust’s administration.
To transfer ownership of a life insurance policy to an ILIT, the necessary documentation typically includes the executed trust agreement, change-of-owner forms provided by the insurance carrier, and updated beneficiary designations naming the trust where appropriate. Additional documentation may include gift records and any notices sent to beneficiaries to preserve annual gift exclusion benefits. Careful coordination with the carrier ensures that the transfer is recorded correctly. Maintaining copies of all carrier confirmations, signed forms, and records of premium funding supports trust administration and tax reporting. Accurate records help trustees meet their duties and provide clear evidence of the transfer and funding steps taken to implement the ILIT effectively under California law.
You can create an ILIT for a policy you already own, but transferring an existing policy carries timing considerations such as the three-year lookback rule that can affect estate tax treatment. When a preexisting policy is moved into an ILIT, careful evaluation of surrender charges, policy value, and tax implications is necessary. In some situations, purchasing a new policy directly owned by the ILIT may be preferable depending on the client’s goals and the timing involved. Regardless of whether you transfer an existing policy or acquire a new one within the ILIT, coordination with the insurance carrier and precise documentation are required. An individualized assessment will determine the best course of action to align the insurance arrangement with the broader estate plan and intended outcomes.
An ILIT and related estate documents should be reviewed periodically, generally every few years or when life events occur such as marriage, divorce, births, deaths, substantial changes in assets, or shifts in tax law. Regular reviews ensure that premium funding remains sufficient, beneficiary designations reflect current wishes, and the trust continues to align with estate objectives. Such reviews also help identify administrative updates or clarifications needed for trustees. Scheduling periodic check-ins provides an opportunity to adjust other estate planning documents so they work harmoniously with the ILIT. Ongoing review helps avoid unintended consequences, ensures orderly administration, and supports long-term preservation of estate value for intended beneficiaries under California legal standards.
If a trustee fails to pay premiums on a policy owned by an ILIT, the policy could lapse, and the anticipated proceeds may be lost or reduced, undermining the plan’s purpose. Trustees have a duty to administer the trust prudently, which includes making timely premium payments or arranging alternative funding as permitted by the trust terms. Prompt action is required to prevent policy lapse and to preserve funds for beneficiaries as intended by the grantor. When trustees face difficulties making payments, options may include seeking additional contributions, using trust assets if available, or negotiating with the insurance carrier for options that preserve coverage. Clear trust provisions that anticipate potential funding challenges and designate steps for trustee action reduce the risk of lapse and protect the estate planning objectives behind the ILIT.
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