An irrevocable life insurance trust (ILIT) can be an important component of a thoughtful estate plan for residents of Coarsegold and Madera County. This page explains how an ILIT works, what it can and cannot accomplish, and how it interacts with other estate planning documents such as a revocable living trust, pour-over will, and powers of attorney. We discuss practical considerations for funding a policy into a trust, minimizing estate tax exposure, and preserving life insurance proceeds for heirs. Our goal is to provide clear information so you can make informed decisions about including an ILIT in your overall plan.
Choosing to create an ILIT involves balancing control, tax planning, and family protection. This section outlines the typical reasons people in California consider an ILIT, including removing life insurance proceeds from a taxable estate, providing liquidity to pay estate expenses, and directing proceeds to beneficiaries over time. We also cover the trustee’s responsibilities, common funding methods like gifts or direct assignments, and interactions with other documents such as a certification of trust or financial power of attorney. Readers will gain a practical overview to start conversations with legal counsel and financial advisors.
An ILIT offers several benefits that may be relevant to residents of Coarsegold and throughout California. When properly drafted and funded, an ILIT removes life insurance proceeds from your taxable estate, which can reduce estate tax exposure for larger estates and preserve more assets for beneficiaries. The trust structure also allows for controlled distributions, protecting proceeds from creditors and from being managed directly by heirs who may not be ready for a large inheritance. Additionally, an ILIT can supply immediate liquidity to pay estate taxes or final expenses without forcing the sale of family property or business interests. These features make an ILIT a versatile planning tool when it is aligned with your overall goals.
Law Offices of Robert P. Bergman provides estate planning services to clients across California, including Coarsegold and Madera County. Our approach focuses on clear communication, practical solutions, and tailored document packages such as revocable living trusts, pour-over wills, and specialized trusts like ILITs and special needs trusts. We work with clients to coordinate trust funding, beneficiary designations, and related documents including financial powers of attorney and advance health care directives. Our aim is to help clients create plans that reflect their values, protect family members, and minimize unnecessary complications during administration and distribution.
An ILIT is a distinct legal entity established to own and control a life insurance policy for the benefit of named beneficiaries. Because the trust is irrevocable once properly executed, the insured typically cannot retain incidents of ownership without jeopardizing the intended tax treatment. Funding an ILIT commonly involves gifting premium payments to the trust or assigning an existing policy into it, and timing matters for transfer tax and estate inclusion rules. A trustee manages the policy and receives proceeds at death for distribution under the trust terms, providing a layer of protection and control beyond individual beneficiary ownership.
Key practical considerations include selecting a trustee who can manage premium payments and policy interactions, structuring gift tax considerations for premium funding, and ensuring the trust complies with state and federal rules to achieve the desired exclusion from the estate. The trust document should address how proceeds are to be used, whether for immediate needs, long-term distributions, or to fund other vehicles such as a special needs trust. Coordination with beneficiary designations and related estate planning documents is essential so the ILIT functions as intended at the time of the insured person’s death.
An irrevocable life insurance trust is a trust created to own and control a life insurance policy on an individual, with the trust named as the policy owner and beneficiary. The trust provisions govern who receives the proceeds and under what conditions, removing the death benefit from the insured’s probate estate when executed and funded correctly. Because the trust is irrevocable, the grantor gives up ownership rights to the policy, which is a necessary condition for achieving estate tax exclusion. The trustee is responsible for maintaining the policy, paying premiums using trust assets or gifts, and distributing proceeds according to the trust’s terms, which can include protections for minors, spendthrift provisions, and structured payouts.
Drafting an ILIT involves several key elements: naming the trust, appointing a trustee, specifying beneficiaries and distribution terms, and setting rules for handling proceeds. The process typically starts with drafting the trust instrument and coordinating funding; funding can occur by gifting funds to the trustee for premium payments or by assigning an existing policy to the trust. It is important to follow rules that prevent retained incidences of ownership and to observe the three-year lookback period for transfers if applicable. Regular review and coordination with other estate planning documents ensure the ILIT remains effective and consistent with overall estate objectives.
This glossary provides definitions of frequently used terms related to ILITs and estate planning. Clear terminology helps clients understand the legal and financial mechanics involved in trust creation, funding, and administration. Terms covered include trustee duties, beneficiary designations, incidents of ownership, gift tax implications, three-year rule, pour-over will, and certification of trust. Familiarity with these concepts supports informed decisions when integrating an ILIT with a revocable living trust, powers of attorney, or other planning tools commonly used in California estate plans.
A trustee is the individual or institution appointed to manage the trust’s assets and carry out its terms for the benefit of the named beneficiaries. Responsibilities of a trustee for an ILIT include handling premium payments, coordinating with insurance companies, managing trust investments if applicable, and distributing proceeds according to the trust document. Trustees carry fiduciary duties to act in the best interests of beneficiaries, maintain accurate records, and follow the trust’s provisions. Choosing a trustee who can reliably manage ongoing administrative tasks and respond to beneficiary needs is an important decision in the ILIT process.
Incidents of ownership refer to rights over a life insurance policy that could cause the policy’s proceeds to be included in the insured’s estate for tax purposes. Examples include the right to change beneficiaries, surrender or assign the policy, or borrow against its cash value. When creating an ILIT, the insured must avoid retaining these incidents of ownership to secure the intended estate tax treatment. The trust document and funding plan are designed to transfer ownership and related controls to the trust, though careful drafting is necessary to ensure no retained rights inadvertently cause estate inclusion.
Funding an ILIT refers to the methods used to supply the trust with assets or premium payments so the trust can own and maintain the life insurance policy. Common approaches include gifting funds to the trustee specifically for premiums, assigning an existing policy to the trust, or having the trust purchase a new policy. Funding must be handled in a way that satisfies gift tax rules and prevents incidents of ownership from remaining with the insured. Documentation of gifts and proper coordination of beneficiary designations are essential elements of a successful funding plan.
The three-year rule is a federal tax principle that can cause life insurance proceeds to be included in an estate if the insured transferred ownership of a policy within three years of death. Under this rule, transfers to an ILIT or other party within that time frame may not achieve the intended exclusion from the taxable estate, so early planning is recommended. The rule underscores the importance of establishing and funding an ILIT well in advance of the insured’s passing, and coordinating with other estate planning measures to avoid unintended tax consequences.
When considering an ILIT, it helps to compare it with alternative or complementary tools such as holding a policy in your revocable living trust, naming individual beneficiaries directly, or relying on payable-on-death designations. An ILIT offers stronger protection from estate inclusion and creditor claims than direct ownership, but it also requires irrevocable transfer and ongoing administration by a trustee. A revocable trust provides flexibility but does not remove life insurance from the estate while the grantor is alive and retains ownership. The right choice depends on goals like tax planning, creditor protection, and control over distributions, as well as timing and family circumstances.
For individuals whose overall estate size is below current federal and state estate tax thresholds and who do not anticipate significant estate tax liability, simpler arrangements may be appropriate. Direct beneficiary designations or holding policies within a revocable living trust can provide straightforward management and avoid the administrative complexity of an irrevocable trust. These options allow for easy changes and can still deliver insurance proceeds quickly to heirs. However, even in modest estates it is important to consider creditor exposure and the beneficiary’s ability to manage a lump-sum inheritance, and to use other documents like the pour-over will and powers of attorney as part of a cohesive plan.
If you anticipate a need to change beneficiaries, adjust coverage, or possibly access policy cash values, a revocable structure or personal ownership may be preferable because it preserves control. A revocable living trust or personal ownership of the policy allows you to adapt coverage as circumstances evolve without the restrictions that accompany irrevocable arrangements. This flexibility can be valuable during periods of significant life change, such as business transitions or caregiving responsibilities. Balancing flexibility against tax and creditor considerations determines whether a limited approach is suitable for your situation.
A comprehensive approach ensures that the ILIT, revocable living trust, pour-over will, beneficiary designations, and powers of attorney all work together without conflicts or unintended consequences. For example, inconsistent beneficiary designations or improperly funded trusts can undermine estate tax planning or cause probate delays. By reviewing and coordinating each document, you reduce the risk of administration challenges, family disputes, and tax surprises. Comprehensive planning also includes considering healthcare directives and guardianship nominations so all personal, financial, and legacy goals are addressed in a unified manner.
When long-term goals include preserving wealth across generations, protecting beneficiaries with special needs, or structuring distributions for minor children, a comprehensive strategy is often necessary. An ILIT can be part of that strategy by preserving life insurance for specific purposes such as funding education, providing for a surviving spouse, or creating a legacy fund. Coordinating the ILIT with special needs trusts, retirement plan trusts, and other mechanisms ensures that proceeds are used as intended and that beneficiaries receive appropriate support while mitigating tax and creditor risks over time.
Integrating an ILIT with other estate planning documents offers benefits that extend beyond tax considerations. A coordinated plan can provide liquidity to cover estate taxes and final expenses, protect proceeds from creditor claims, and prevent unintended distributions caused by conflicting beneficiary designations. It also allows for tailored distribution strategies such as staggered payments or conditions for use, which can be especially important for beneficiaries who are minors or who have special support needs. Careful draftsmanship and ongoing review help ensure the plan remains aligned with changing family and financial circumstances.
A unified approach reduces the administrative burden on trustees and personal representatives at the time of death, since instructions are clear and trust funding is organized. This can minimize disputes among heirs and accelerate the transfer of assets where immediate funds are needed. Coordination with documents such as a certification of trust and general assignment of assets to trust streamlines third-party interactions with insurance companies, banks, and retirement plan administrators. The result is a smoother transition for surviving family members and a higher likelihood that your intentions will be fulfilled.
One of the most cited benefits of an ILIT is the potential to reduce estate tax exposure by keeping life insurance proceeds outside the insured’s taxable estate, provided the trust is properly executed and funded in advance. In addition to tax considerations, ILIT proceeds can provide immediate liquidity to settle debts, pay final expenses, or cover estate administration costs, helping to avoid the forced sale of assets. This liquidity can be especially important for closely held businesses or real estate holdings where liquid cash may be limited upon the death of an owner.
An ILIT enables you to specify how and when beneficiaries receive life insurance proceeds, offering protections against creditors, divorcing spouses, or poor financial decisions by beneficiaries. Trust provisions can create structured distributions over time, hold funds for educational or health needs, or direct funds to a special needs trust to preserve public benefits. This level of control helps ensure the intended use of insurance proceeds and provides a mechanism to support family members in a way that reflects your priorities and values while reducing the likelihood of misuse or rapid depletion of those funds.
Establishing and funding an ILIT well before any anticipated need reduces the risk that life insurance proceeds will be pulled back into the taxable estate under the three-year rule or other transfer timing concerns. Early planning allows time to transfer or assign policies properly, document gifts for premium payments, and structure trustee responsibilities. It also creates space to coordinate the ILIT with retirement plan beneficiary designations and a pour-over will so that all elements of your estate plan work together. Starting early eases administrative burdens and improves the likelihood your intentions will be effective when most needed.
For an ILIT to function as intended, beneficiary designations on the insurance policy must reflect that the trust is the owner and primary beneficiary. Document coordination avoids conflicts that could lead to probate or unintended inclusion in the estate. Ensure the trust includes explicit instructions for distributions, consider spendthrift provisions for creditor protection, and address contingencies such as predeceasing beneficiaries. Regularly review these arrangements when major life events occur, such as marriage, divorce, births, or changes in financial circumstances, to maintain alignment with your overall estate planning objectives.
You might consider an ILIT if your goals include preserving life insurance proceeds for heirs, reducing potential estate tax exposure, or providing liquidity to settle estate obligations without disturbing other assets. An ILIT can be particularly useful where there is a need to protect proceeds from creditor claims, ensure controlled distributions for minors, or preserve eligibility for public benefits through coordinated special needs planning. The decision depends on your estate size, family dynamics, and long-term objectives; discussing these factors early helps identify whether an ILIT complements your other planning tools such as revocable living trusts or retirement plan trusts.
An ILIT can also be appropriate when life insurance is expected to play a specific role in wealth transfer, such as equalizing inheritances among heirs, providing a legacy gift, or securing business succession arrangements. For business owners, life insurance proceeds held in an ILIT can provide funds to buy out a deceased owner’s interest or stabilize operations during transition. Regardless of the reason, incorporating a life insurance trust into a comprehensive plan requires careful coordination of funding, trustee selection, and related documents to ensure the intended outcomes are achieved.
Situations that commonly lead people to consider an ILIT include significant life insurance holdings relative to estate size, the need to protect proceeds from creditors or divorce, planning for beneficiaries with special needs, and creating liquidity for estate settlement. Business owners and real estate owners may also use ILITs to avoid forced sales to cover expenses or taxes. Additionally, families seeking to impose distribution conditions or long-term management of proceeds often find a trust structure more appropriate than direct beneficiary payouts. Each circumstance benefits from tailored drafting and coordination with other estate planning documents.
When life insurance benefits represent a substantial portion of the overall estate, an ILIT can help segregate those proceeds from the estate, potentially reducing estate tax exposure and providing a clear mechanism for distributing proceeds. This arrangement is effective for preserving value for heirs and supplying liquidity for estate obligations without disturbing illiquid assets. Proper timing and transfer procedures are essential to achieve the intended treatment, and owners should consider how premium funding will be managed to maintain policy coverage over the long run.
Families with beneficiaries who have special needs, are minors, or have difficulty managing money often use ILITs to control the timing and purpose of distributions. An ILIT can direct proceeds into a special needs trust to preserve public benefits, or structure payouts to cover education, health care, or living expenses over time. This approach helps ensure proceeds are used in a way that supports beneficiary wellbeing while protecting assets from creditors or divorce proceedings. The trust terms should be carefully drafted to match the intended level of protection and support.
Business owners frequently require liquidity at the time of death to buy out a partner’s interest, settle debts, or maintain operations during transition. An ILIT can provide dedicated funds for these purposes, preventing the need to liquidate business assets under unfavorable conditions. When combined with buy-sell agreements or other succession planning tools, life insurance in trust can stabilize the business and facilitate orderly ownership transfer. Coordination among corporate documents, buy-sell agreements, and the ILIT is important to ensure seamless implementation.
The Law Offices of Robert P. Bergman provides estate planning services to clients in Coarsegold and the surrounding communities of Madera County. We assist with creating ILITs, revocable living trusts, pour-over wills, and other documents such as powers of attorney and advance health care directives. Our focus is on practical, client-centered planning that addresses family circumstances and financial realities. Whether you are considering an ILIT for tax planning, asset protection, or beneficiary management, we can help you evaluate options and implement a plan tailored to your needs and goals in California.
Clients choose the Law Offices of Robert P. Bergman for comprehensive estate planning because of our patient approach to explaining complex legal concepts in clear terms. We focus on understanding your family dynamics, financial objectives, and legacy priorities before recommending structures such as ILITs, revocable trusts, or special needs trusts. Our practice helps clients coordinate beneficiary designations, funding strategies, and related documents so that plans function as intended when they are needed most. We prioritize practical solutions that reduce administrative friction and provide durable protections for your loved ones.
We emphasize careful drafting and ongoing review to keep estate plans aligned with changes in law and family circumstances. That includes preparing documents such as financial powers of attorney, advance health care directives, certifications of trust, and assignments to fund trusts. Our team assists with trustee selection and develops clear instructions for trust administration to ease the burden on families. By anticipating implementation issues and coordinating with financial professionals, we aim to deliver plans that are both functional and respectful of client priorities.
When clients need assistance after a trust becomes active, we provide guidance through trust administration, beneficiary communications, and interactions with insurance carriers and other third parties. From initial consultations to document signing and post-funding reviews, our services are designed to be accessible and responsive. We also help clients integrate ILITs with business succession plans, retirement plan trusts, and other estate tools as needed. The goal is to create a cohesive plan that protects assets, provides for loved ones, and reduces the potential for disputes at an already difficult time.
Our process begins with a thorough intake to identify your goals, assets, and family circumstances. We then recommend whether an ILIT fits within your overall plan and outline alternatives such as revocable trusts or beneficiary designations. If you decide to proceed, we draft the trust, coordinate funding strategies, and prepare related documents like pour-over wills and powers of attorney. Once signed, we assist with transferring or assigning policies, documenting gifts for premium funding, and creating a certification of trust to simplify third-party interactions. Periodic review ensures the plan continues to meet your needs.
During the initial consultation we gather information about assets, current life insurance policies, family relationships, and long-term planning goals. We review whether an ILIT aligns with your objectives and discuss alternative structures where appropriate. This stage includes evaluating potential estate tax exposure, creditor concerns, and timing considerations such as the three-year rule. Based on this analysis we present recommended strategies for trust terms, trustee selection, and funding methods so you can make an informed decision about moving forward.
We collect details on existing life insurance policies, ownership and beneficiary designations, retirement accounts, real estate holdings, and any business interests. Understanding the full asset picture allows us to model how an ILIT will interact with other elements of your estate plan and identify any coordination issues up front. Documentation of current arrangements is essential so we can draft precise trust provisions and funding instructions that minimize the risk of rollover into probate or unintended estate inclusion.
After reviewing your assets and family circumstances, we discuss objectives such as tax mitigation, creditor protection, or controlled distribution for beneficiaries. We explain the implications of transferring a policy into an ILIT, the trustee’s role, and how funding will be handled. This conversation helps shape the trust structure, distribution schedules, and any special provisions needed to support beneficiaries with unique needs or to align with business succession plans.
Once the strategy is selected, we draft the ILIT document and any companion instruments such as a certification of trust, pour-over will, or general assignment of assets to trust. The trust includes clear instructions for the trustee regarding premium payments, policy management, and distribution terms. We tailor provisions to reflect your wishes, whether you prefer immediate distributions, staged payments, or funding into other trusts like special needs or retirement plan trusts. Careful drafting helps avoid ambiguities that could complicate administration later.
We review draft documents with you to ensure the language matches your intentions and addresses foreseeable contingencies. This collaborative stage may include revisions to beneficiary rules, trustee powers, and distribution schedules. We also confirm compliance with relevant legal rules to preserve the intended tax treatment and to avoid retained rights that could affect estate inclusion. Clear and precise drafting reduces the potential for disputes and streamlines later administration.
After finalizing the trust and companion documents, we coordinate execution in accordance with California formalities. Signatures, notarization, and proper witness requirements are completed to ensure the trust is legally effective. We also prepare any assignment forms needed to transfer existing policies and create documentation for gifts designated for premium payments. Providing properly executed documents helps prevent challenges and assures third parties such as insurance carriers that the trust is valid and authorized to act.
Funding the ILIT is a critical step and can be accomplished through gifting funds to the trust for premium payments, assigning an existing policy into the trust, or arranging for the trust to apply for a new policy. We assist with documenting gifts, setting up Crummey notices if needed, and coordinating with financial institutions and insurance companies. Once funded, ongoing administration includes premium payment tracking, recordkeeping, and periodic reviews to ensure the policy remains in force and the trust continues to meet your objectives.
Maintaining accurate records of premiums, gifts, trustee actions, and communications with insurers is essential for trust administration and for potential tax reporting. We provide guidance on what documents to retain and how to prepare notices to beneficiaries when gifts are made for premium funding. Proper documentation supports the trust’s tax position and provides transparency for beneficiaries and fiduciaries in the future.
Circumstances change over time, so periodic review of the ILIT and related estate planning documents is recommended. Reviews address changes in law, family status, financial assets, and insurance needs. While the trust itself is irrevocable, related planning elements such as funding strategies and beneficiary plans may require adjustments. We work with clients to schedule reviews and to coordinate changes in other documents like revocable trusts or retirement plan beneficiary designations to maintain a cohesive plan.
An ILIT is a trust designed specifically to own a life insurance policy and manage its proceeds for beneficiaries according to the trust terms. Unlike keeping a policy in your personal estate or naming individual beneficiaries directly, an ILIT, when properly executed and funded, can remove death benefits from your estate for tax purposes and provide controlled distributions, creditor protection, and directed uses of proceeds. Establishing the trust requires transferring ownership of the policy to the trust and appointing a trustee to manage it. The trustee is responsible for maintaining the policy, paying premiums from trust funds, and distributing proceeds as directed. Because creation and funding involve legal and tax considerations, coordination with other estate planning documents such as a pour-over will or revocable living trust is important. Proper timing and documentation help ensure the trust achieves its intended tax and asset protection outcomes.
Funding an ILIT commonly occurs through two main methods: transferring an existing policy to the trust or gifting funds to the trustee for the trust to pay premiums on a policy it owns or purchases. When gifting funds for premiums, donors often use annual exclusion gifts or other permitted strategies to manage potential gift tax consequences. Documentation of gifts and maintaining records of premium payments are important to support the trust’s administration and tax reporting. Another funding method is having the trust itself purchase a new policy, with premiums paid by gifts to the trust. If a policy is transferred to the trust, consider the timing relative to the three-year rule, which can affect whether proceeds remain outside the insured’s estate. Properly documenting assignments and coordinating beneficiary designations with the trust help ensure the funding achieves the intended results.
A trustee can be an individual such as a trusted family member, friend, or a professional fiduciary, or an institutional trustee. The choice should reflect the trustee’s ability to manage administrative duties like paying premiums, dealing with insurance carriers, keeping records, and following distribution instructions. The trustee must also be willing to serve over potentially many years and handle occasional complex tasks such as coordinating with beneficiaries and tax advisors. Trustee responsibilities include maintaining the policy according to the trust terms, investing trust assets if applicable, and distributing proceeds as specified. Clear successor trustee provisions are helpful to ensure continuity. When selecting a trustee, consider availability, financial acumen, and impartiality to minimize conflicts and ensure consistent administration in accordance with your wishes.
Funding an ILIT may involve gift tax considerations depending on the method used and the amounts involved. Annual gifts for funding premium payments can often be handled using the annual gift tax exclusion, but larger gifts might require filing a gift tax return or using a portion of lifetime gift tax exemption. Documentation of gifts and the timing of transfers is important for accurate reporting and compliance with tax rules. Even when gifts are required, many clients find the long-term estate planning benefits outweigh immediate reporting concerns. It is important to plan funding with attention to timing, particularly to avoid estate inclusion under the three-year rule if a transfer occurs shortly before death. Consulting with a tax advisor alongside legal counsel helps structure funding to align with your objectives and tax circumstances.
Yes, an ILIT can be integrated with other trust structures to achieve multiple planning goals. For example, life insurance proceeds in an ILIT can be directed to fund a special needs trust to provide for a beneficiary while preserving eligibility for public benefits. Proceeds can also be used to fund a retirement plan trust or to equalize inheritances among heirs. Careful drafting is needed to ensure the trust terms and funding mechanisms support the intended interactions and do not create unintended tax or eligibility consequences. Coordination among trusts, beneficiary designations, and related estate planning documents is essential to prevent conflicts and ensure the proceeds are applied as intended. This often involves drafting companion documents such as a certification of trust, general assignment of assets, and clear trust provisions that specify successor arrangements and distribution priorities to reflect your broader legacy goals.
The three-year rule refers to a tax provision that can cause insurance proceeds to be included in the deceased person’s estate if the policy was transferred within three years of the insured’s death. If you transfer a policy to an ILIT or otherwise relinquish ownership too close to the time of death, the hoped-for estate tax exclusion may not apply. This makes it important to plan transfers well in advance and to consider timing carefully when moving policies into a trust. Because life is unpredictable, transfers should be coordinated with an overall plan that accounts for possible changes in health and circumstances. Early funding and clear documentation of assignments and gifts help reduce the risk of unintended inclusion under the three-year rule. Discussing timing and alternatives with counsel can help determine the safest approach based on your situation.
Beneficiary designations must align with the trust’s ownership to ensure the ILIT functions as intended. If the trust is the owner and beneficiary of the policy, beneficiary designations should reflect that ownership. Naming individuals directly while intending an ILIT can create conflicts and may result in proceeds being paid outside the trust, leading to unintended estate inclusion or probate. Clear coordination prevents such outcomes and ensures that the trust’s distribution terms control the use of proceeds. When changes to beneficiary designations are needed, they should be made in a way that preserves the trust’s role. This may involve updating the policy’s naming conventions, executing assignments of ownership, and documenting any gifts used to fund premiums. Regular reviews of beneficiary designations alongside the trust documents help avoid surprises and ensure the plan operates smoothly at the time of a claim.
You can transfer an existing life insurance policy into an ILIT, but the transfer must be handled properly to avoid retaining incidents of ownership or triggering unfavorable tax consequences. Assigning a policy to the trust requires formal documentation with the insurer and careful consideration of gift tax and timing rules. The three-year lookback period is particularly relevant when transferring an existing policy, as transfers within three years of death could result in estate inclusion of proceeds. Before transferring, review the policy terms, including any surrender charges, cash value, or loan features, to ensure the transfer aligns with your overall plan. Coordination with the trustee to arrange premium funding and with tax advisors for reporting is important. Proper transfer and documentation help the trust maintain the intended protections and tax treatment for life insurance proceeds.
If the trustee fails to pay premiums and the policy lapses, the trust could lose the protection and benefits intended by holding the policy in trust. A lapsed policy may result in the loss of life insurance coverage, leaving beneficiaries without the anticipated proceeds and potentially upsetting estate planning assumptions. For this reason, careful trustee selection and clear instructions about premium funding are essential to prevent lapses and to preserve the plan’s objectives. To mitigate this risk, consider successor trustee provisions, clear documentation of funding mechanisms, and recordkeeping practices that help trustees track premium obligations. Some trust arrangements include contingency plans for replacing policies or providing funds if premiums are not paid. Regular trust reviews and communication between grantors, trustees, and financial advisors can reduce the likelihood of an inadvertent lapse.
It is advisable to review your ILIT and broader estate plan periodically and after major life events such as marriage, divorce, births, deaths, changes in asset values, or business transitions. Reviews ensure that the trust terms, funding strategies, and beneficiary designations remain aligned with current goals and legal developments. Even though an ILIT is irrevocable, surrounding arrangements and funding approaches may need adjustment to reflect changes in family circumstances or financial circumstances. Periodic reviews also help verify that premium funding is on track, that trustees and successor trustees remain suitable, and that projected outcomes still match your intentions. Scheduling a review every few years or when significant events occur helps maintain the plan’s effectiveness and avoids surprises that can complicate administration for your loved ones.
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