An Irrevocable Life Insurance Trust (ILIT) can be a powerful tool in a well‑organized estate plan for residents of Carmel Valley Village and surrounding Monterey County communities. This guide introduces how an ILIT functions, the common reasons people choose to create one, and the practical considerations involved in funding and administering a trust that holds life insurance policies. The Law Offices of Robert P. Bergman can help you understand whether including an ILIT aligns with your broader estate planning goals, including protecting policy proceeds from estate taxation, clarifying beneficiary outcomes, and ensuring a smoother distribution process for heirs and loved ones.
Deciding whether an ILIT is appropriate requires careful attention to your family dynamics, the value of life insurance holdings, and long‑term objectives for wealth transfer and creditor protection. This translated information explains the steps typically involved in establishing an ILIT, how to name trustees and beneficiaries, and what ongoing administration looks like once funding is complete. We discuss interactions with other estate documents such as wills, revocable living trusts, and powers of attorney, and provide practical next steps so you can make informed decisions about protecting financial legacies and minimizing future administrative burdens for those you leave behind.
An ILIT offers a way to remove life insurance proceeds from an estate, which may reduce estate tax exposure and provide clearer, immediate liquidity to cover debts, taxes, or beneficiary needs after a death. Beyond potential tax planning benefits, an ILIT creates a legal structure for how proceeds are held and distributed, protects policy proceeds from probate, and can be drafted to provide oversight through trustee management. For families with young beneficiaries, blended family situations, or those seeking to preserve benefits for a surviving spouse or minor children, an ILIT can add predictability and control to the transfer of life insurance assets under known terms.
The Law Offices of Robert P. Bergman serves clients across San Jose, Carmel Valley Village, and broader California communities with practical, client‑centered estate planning services. Our approach focuses on listening to individual needs and designing trust arrangements, including ILITs, that align with family goals and legal requirements. We provide clear explanations of trust mechanics, guidance on funding life insurance into a trust, and ongoing support for trustee duties. Our office is available by phone at 408-528-2827 to discuss how a thoughtful trust plan can fit within your broader estate strategy and the specific facts of your family and financial circumstances.
An ILIT is a trust that is intentionally made irrevocable so that life insurance policies owned by the trust are not included in the grantor’s taxable estate. Establishing an ILIT typically involves transferring an existing policy into the trust or having the trust own a new policy, naming the trust as owner and beneficiary. The trustee manages policy administration, premium payments, and distribution of proceeds according to trust terms. Because the trust is irrevocable, the grantor generally gives up direct control over the policy and trust assets, which is an important tradeoff that requires careful planning and a clear understanding of long‑term intentions.
Funding and administration are key elements of successful ILIT planning. The trust document must be drafted to satisfy legal requirements and avoid unintended tax consequences, and the trustee must be prepared to receive premium contributions and handle tax and accounting matters when proceeds are distributed. It is also important to coordinate beneficiary designations and related estate documents so the ILIT functions as intended, and to consider potential creditor and Medicaid planning implications depending on individual circumstances. Regular review ensures the trust continues to reflect changes in family relationships, assets, and law.
An Irrevocable Life Insurance Trust is a specific legal vehicle designed to own life insurance policies outside of an individual’s taxable estate. The grantor creates the trust and relinquishes ownership, naming a trustee to manage the policy and distribute proceeds to named beneficiaries. The trust’s irrevocable nature is central to its design: because the grantor no longer owns the policy, the proceeds generally bypass probate and may not be included in estate calculations. This structure is often used to secure liquidity for paying estate obligations, to provide for family members, and to control how insurance proceeds are used after the grantor’s death.
Creating an ILIT involves drafting clear trust terms, selecting a trustee, transferring existing policies or issuing new ones to the trust, and setting a funding mechanism for premium payments. Other considerations include naming successor trustees, defining distribution criteria for beneficiaries, and preparing related documents like pour‑over wills and health care directives to ensure cohesive estate planning. Ongoing administration requires accurate recordkeeping, coordination for premium payment contributions, and a plan for investment or management of trust assets once policy proceeds are received. Periodic reviews are recommended so the trust continues to meet changing family or tax considerations.
Understanding common terms will help you navigate discussions about ILITs. This glossary explains basic concepts such as grantor, trustee, beneficiary, policy ownership, funding, and trust administration. Clear definitions can reduce confusion during the drafting process and help family members or trustees know what to expect. When deciding on trust provisions, it is important to understand the practical meaning of each term and how that meaning affects control, distribution timing, tax treatment, and ongoing duties that may fall on trustees or financial custodians during and after the grantor’s life.
An Irrevocable Life Insurance Trust is a trust that owns a life insurance policy and is structured so the grantor cannot revoke or directly control the trust after its creation. The primary aim is to keep the life insurance proceeds out of the grantor’s taxable estate and to provide defined distribution rules for beneficiaries. Because of the irrevocable nature, the trust document must be carefully drafted to match the grantor’s intentions for premium funding, beneficiary distributions, and trustee powers. Proper setup and funding are critical to obtain the intended estate planning outcomes.
A trustee is the individual or institution appointed to manage trust assets according to the terms set forth in the trust document. For an ILIT, the trustee is responsible for receiving premium contributions, paying policy premiums if required, managing any investments held by the trust, and distributing proceeds to beneficiaries in the manner directed by the trust. Trustees have fiduciary duties to act in beneficiaries’ best interests, maintain accurate records, file any necessary tax returns, and follow the trust terms regarding timing and conditions for distributions.
The grantor is the person who creates the trust and transfers assets or ownership to it. In the context of an ILIT, the grantor typically makes the initial decisions about the trust’s structure, names trustees and beneficiaries, and provides a plan for funding premium payments. Because the ILIT is irrevocable, the grantor gives up direct ownership and control, which is an intentional step to achieve certain estate planning objectives. The grantor may still contribute funds to the trust to pay premiums, but these contributions must be made in a way that preserves the trust’s intended tax treatment.
A beneficiary is any person or entity designated to receive trust distributions, including proceeds from a life insurance policy owned by the ILIT. Beneficiaries may include spouses, children, charities, trusts for minors, or other named recipients. The trust document can specify timing, amounts, and conditions for distributions, such as staggered payments, educational uses, or distributions for health and maintenance. Clear beneficiary designations and instructions help prevent disputes, and can ensure that policy proceeds are used in line with the grantor’s goals while providing a measure of protection from creditors or unintended claims.
Choosing between an ILIT and other estate planning tools like revocable living trusts, wills, or beneficiary designations depends on factors such as tax exposure, control preferences, and funding complexity. A revocable trust offers flexibility because it can be changed during the grantor’s life, but assets in a revocable trust may remain part of the taxable estate. Wills direct asset distribution but usually require probate. An ILIT specifically removes life insurance from the estate when properly structured, but at the cost of irrevocability. Evaluating each option and how they work together helps families align legal documents with financial and personal objectives.
A limited planning approach may be sufficient for individuals whose life insurance policies and overall estate value are modest and not expected to trigger estate tax concerns. If the primary priorities are straightforward beneficiary payouts and avoiding probate where possible, then simple beneficiary designations combined with a will or a revocable living trust may provide an adequate solution. This approach can be less complex to administer and more flexible for the grantor while still offering clarity about who receives life insurance proceeds and other assets after death.
If maintaining the ability to change beneficiaries or policy ownership during your lifetime is essential, a limited approach is often preferable because it preserves flexibility. A revocable trust or direct ownership of a policy with clear beneficiary designations allows you to adapt to changing circumstances such as remarriage, births, or changes in financial position. For many people, that ongoing control outweighs the potential estate planning advantages of irrevocable ownership, particularly when the estate’s size or tax exposure does not make an ILIT necessary.
Comprehensive planning becomes more compelling when estate values are substantial or family relationships require tailored protection. An ILIT as part of a broader plan can ensure that insurance proceeds are preserved for intended beneficiaries, limit exposure to estate taxation, and provide structured distributions that address blended family concerns, minor children, or beneficiaries with special financial needs. Coordinating an ILIT with other trust arrangements and estate documents helps reduce uncertainty and provides a cohesive legal framework for managing wealth transfer across generations.
When asset protection and predictable distribution of proceeds are priorities, a comprehensive plan that includes an ILIT can provide an effective structure. Such planning can shield insurance proceeds from probate and may offer protections against certain creditor claims depending on trust terms and timing. It also enables detailed distribution rules that reflect the grantor’s intentions, such as staggered payouts, trust support for education, or preserved benefits for surviving family members. Careful drafting and coordination with financial advisors ensure the trust meets those goals while complying with relevant legal requirements.
A comprehensive approach that includes an ILIT can provide multiple advantages: it may remove life insurance proceeds from the taxable estate, offer liquidity to pay final expenses and taxes, provide a structured vehicle for distributions, and protect proceeds from probate delays. Aligning the ILIT with existing estate documents, retirement plan trusts, or special needs trusts ensures that proceeds are used as intended without disrupting eligibility for public benefits where appropriate. The result is a more predictable transition of wealth that reduces administrative burdens on family members during a difficult time.
Beyond tax and probate considerations, including an ILIT within a larger plan allows for careful selection of trustees and guardianship nominations, crafting tailored distribution schedules, and coordinating beneficiary designations with retirement accounts and other policies. This coordination reduces the chance of conflicting instructions, minimizes delays, and helps ensure beneficiaries receive support that reflects the grantor’s priorities. Comprehensive planning also provides the opportunity to revisit and revise strategies in response to changes in family circumstances or law, maintaining alignment with long‑term objectives.
One primary benefit of an ILIT is the potential to keep life insurance proceeds out of the grantor’s estate for tax purposes, which can reduce estate tax exposure for larger estates. Additionally, because proceeds held in the trust are available immediately following a qualifying event, they can provide needed liquidity to pay debts, taxes, and final expenses without forcing the sale of other estate assets. This immediate availability helps preserve family property and investments during estate administration and supports a smoother transition for heirs.
An ILIT provides mechanisms to control how and when life insurance proceeds are distributed to beneficiaries, reducing the likelihood of impulsive spending or unintended creditor claims. Trust terms can stipulate staggered distributions, allow for distributions for education or housing, or require trustee oversight for specific needs. By clearly documenting distribution rules and trustee responsibilities, an ILIT can add predictability and protection, ensuring that proceeds serve beneficiaries in ways that align with the grantor’s intentions and family circumstances over time.
Creating a reliable method to fund trust premiums is essential for any ILIT. Without a clear plan for premium contributions, policies owned by the trust can lapse, undermining intended benefits. Consider how gifts to the trust will be coordinated for premium payments, whether through annual gifts, institutional transfers, or other arrangements. It is also important to document those contributions and consult on potential gift tax implications. Establishing a funding routine reduces administrative strain on trustees and helps preserve the value of the life insurance asset for beneficiaries in accordance with your objectives.
Ensure beneficiary designations on life insurance policies and retirement accounts are consistent with trust provisions to avoid competing instructions. Coordinate the ILIT with existing estate planning documents like wills, revocable living trusts, powers of attorney, and advance health care directives so that all parts of the plan work together as intended. Regular reviews can detect conflicts or outdated designations, particularly after major life events such as marriage, divorce, births, or significant changes in financial holdings. Proactive coordination reduces confusion for trustees and beneficiaries and helps maintain clarity over time.
Consider an ILIT if you want to remove life insurance proceeds from your taxable estate, provide immediate liquidity for heirs, or establish controlled distribution terms that protect beneficiaries from creditors or poor financial decisions. It is also appropriate when coordinating complex family situations, such as blended families or beneficiaries with special financial needs, where defined trust terms ensure proceeds are used as intended. Because an ILIT is irrevocable, weighing the tradeoffs between control during life and post‑death benefits is an essential part of deciding whether this trust fits your circumstances and long‑term goals.
Other reasons to consider an ILIT include a desire to reduce administrative delays during probate, to preserve other estate assets for future generations, and to provide funds for obligations like estate taxes or final expenses without liquidating property. Individuals with significant life insurance holdings, business interests, or real estate may find that combining an ILIT with other trusts and planning documents creates better alignment between financial objectives and family needs. Consultation and review help identify whether the expected benefits justify the trust’s irrevocability and funding obligations.
Typical situations prompting consideration of an ILIT include having large life insurance policies relative to total estate value, anticipating estate tax exposure, wanting to protect proceeds from probate or creditor claims, or needing to provide structured support to minor children or vulnerable beneficiaries. Family events such as remarriage, business succession planning, or significant asset growth can also make an ILIT useful. Each situation requires tailored analysis to ensure the trust is drafted, funded, and administered to achieve desired outcomes without unintended tax or legal consequences.
When life insurance policies represent a substantial portion of your overall estate, placing those policies into an ILIT can remove the proceeds from your taxable estate and help ensure that the cash payout benefits your chosen beneficiaries without being subject to probate. This structure can reduce complexities during estate administration and provide heirs with immediate funds to handle taxes and debts. Careful planning is required to transfer or issue policies to the trust in a way that aligns with legal and tax rules and preserves intended benefits for beneficiaries.
Blended family situations or beneficiaries with unique financial considerations often benefit from the controlled distribution mechanisms an ILIT provides. The trust instrument allows you to specify how proceeds are distributed among stepchildren, spouses, and other relatives, minimizing the chance of disputes and clarifying expectations. You can design staggered distributions, requirements for education or health uses, and protections against unintended claims. This ensures that your wishes for different family members are carried out in an orderly, enforceable manner that reflects your priorities.
If maintaining liquidity to pay taxes, debts, or estate settlement costs is a priority, an ILIT can help by ensuring that life insurance proceeds are available quickly and outside the probate process. Immediate availability of funds prevents the forced sale of real estate or other assets to meet obligations, protecting family property and long‑term financial plans. The trust also provides a structure for trustees to manage and disburse funds in accordance with documented objectives, which reduces uncertainty for heirs during administration.
We serve Carmel Valley Village and Monterey County residents seeking thoughtful ILIT planning and related estate documents. Our office helps families design trust terms, select trustees, coordinate funding for premiums, and integrate ILITs with wills, revocable living trusts, powers of attorney, and health care directives. Whether you are creating an ILIT for the first time or reviewing an existing trust to ensure it still meets your needs, we provide clear guidance on the legal steps involved and practical considerations for administration and beneficiary protection.
Our firm focuses on delivering practical, reliable guidance for estate planning matters including ILITs. We emphasize clear communication, careful document drafting, and coordination among financial professionals so the trust functions as intended. Clients appreciate our attention to detail when crafting trustee powers, distribution terms, and funding arrangements, and our commitment to preparing documents that integrate with existing estate plans. We also provide ongoing accessibility to explain procedures and responsibilities for trustees and beneficiaries after a trust becomes effective.
From initial consultations to final trust execution, we help clients understand the legal mechanics of ILITs and the implications of irreversibility. Our office assists in reviewing existing policies for transfer, drafting pour‑over wills and related documents, and advising on premium funding mechanisms that reduce administrative disruption. We practice with an emphasis on personalized service, responding to client questions and coordinating with accountants, financial advisors, and insurance agents to ensure cohesive planning across all relevant areas.
We recognize that estate planning is personal and often sensitive, so we approach each matter with discretion and a focus on preserving family values and financial legacies. By clarifying trust provisions, preparing trustee instructions, and ensuring beneficiary designations are aligned, we help clients move forward with a plan that addresses both legal and practical concerns. Contact our office at 408-528-2827 to discuss whether an ILIT is an appropriate component of your estate plan and to schedule a confidential consultation.
Our process begins with a confidential consultation to gather information about your family, assets, and goals. We review life insurance policies, beneficiary designations, and related estate documents to determine if an ILIT is appropriate. Next, we draft trust language tailored to your needs, advise on funding options for premiums, and prepare supporting documents such as pour‑over wills and powers of attorney. Once documents are finalized, we assist with trust execution, transfers of policy ownership if applicable, and provide trustee guidance to support smooth administration going forward.
The first step involves a detailed review of your current estate planning documents, life insurance policies, and family objectives. We assess policy ownership, beneficiary designations, and potential tax or creditor considerations that might influence whether an ILIT is appropriate. This assessment helps identify the best structure for trust provisions and funding methods, and clarifies interactions with existing wills, revocable trusts, and retirement plan designations. Understanding these elements early reduces surprises later in the planning process.
We gather essential information about policy values, premium schedules, asset ownership, and family relationships to tailor the ILIT to your needs. This includes identifying potential beneficiaries, designating trustees and successors, and documenting any special distribution preferences such as trusts for minors or gifts for education. Accurate, complete information allows us to draft trust provisions that reflect the realities of your estate and minimize the need for future amendments while respecting the irrevocable nature of the trust once established.
We analyze the potential tax implications and funding logistics associated with transferring or issuing life insurance within an ILIT. This involves reviewing possible gift tax consequences, timing rules that affect estate inclusion, and methods for making premium contributions such as annual exclusion gifts. Identifying the optimal funding path upfront helps preserve the intended benefits of the trust and prevents administrative lapses that could negate the trust’s purpose.
Once the planning details are agreed upon, we prepare trust documents that clearly articulate trustee powers, distribution terms, funding mechanisms, and successor provisions. Documents are reviewed with you to ensure they capture your intentions. We then coordinate a signing process that meets legal formalities and helps confirm that policies are properly assigned or issued to the trust. Proper execution is essential to create the legal protection and clarity that an ILIT is meant to provide.
We draft language that addresses ownership of the policy, trustee duties for premium payments and recordkeeping, distribution schedules for beneficiaries, and provisions for successor trustees. Special provisions can be included to address concerns such as minor beneficiaries, special needs, or charitable gifts. Drafting focuses on clarity and enforceability to ensure trustees have straightforward authority to manage the trust consistent with your goals.
Coordination with insurance carriers and financial advisors is a key step to confirm the policy is properly assigned to the ILIT or that a new policy is issued in the trust’s name. We help coordinate beneficiary updates, transfers of ownership, and the establishment of funding arrangements for premium payments. Confirming these details at execution reduces the risk of lapses and ensures the trust will function as intended upon a triggering event.
After the trust is established and funded, ongoing administration is necessary to maintain premium payments, file any required tax returns, and manage distributions when policy proceeds are received. Trustees may need guidance on recordkeeping, investment of trust assets, and fulfilling fiduciary duties. Periodic reviews are recommended to ensure that changes in family circumstances or law do not undermine the trust’s purpose, and to adjust related estate documents as life events occur.
We provide guidance for trustees on their duties, including maintaining accurate records of premium payments, gifts received for funding, and communications with beneficiaries and insurance carriers. Proper documentation is essential for both legal compliance and maintaining clarity among interested parties. Trustee support also includes addressing questions about distributions, helpful practices for accounting, and steps to follow at the time policy proceeds become payable to the trust.
Regular reassessment of the ILIT and related estate planning documents helps ensure continued alignment with financial goals and family needs. Coordination with financial advisors and insurance agents can identify changes in policy values, shifting premium obligations, or opportunities to optimize trust outcomes. Periodic reviews also enable updates to supplementary documents like pour‑over wills, powers of attorney, or guardianship nominations so that the full estate plan remains coordinated and effective.
An Irrevocable Life Insurance Trust is a trust created to own a life insurance policy so that the proceeds are generally not included in the grantor’s estate for federal estate tax purposes. The grantor establishes the trust, names a trustee to manage the policy and future distributions, and typically transfers ownership of an existing policy or has a new policy issued in the name of the trust. Because the trust is irrevocable, the grantor gives up direct ownership and control, which is an intentional choice to achieve effects such as probate avoidance and controlled distribution of proceeds. The trustee’s role includes maintaining the policy, ensuring premium payments, and distributing proceeds according to the trust’s terms after the insured’s death. Effective ILIT planning requires careful coordination of policy transfers, premium funding methods, and beneficiary designations so the trust operates as intended. Proper documentation and timely transfers are crucial to preserve the trust’s intended treatment and to avoid unintended tax consequences or administrative issues.
Once a life insurance policy is transferred into an ILIT, the trust becomes the policy owner and the named beneficiary, which means the grantor generally cannot unilaterally change the beneficiary designation directly on the policy. Instead, changes to beneficiary outcomes would need to be made through the trust terms or, if the trust permits, by amending related documents under provisions allowed by the trust. Because the ILIT is irrevocable, preserving flexibility requires careful drafting and anticipating future family changes when setting initial terms. Before transferring a policy to an ILIT, consider how future life events like remarriage, births, or changes in financial circumstances should be addressed. The trust can include provisions for successor beneficiaries, contingent distributions, and procedures for trustee‑initiated changes within specified parameters. Discussing these possibilities during the drafting process helps ensure that beneficiary outcomes remain aligned with long‑term intentions while maintaining the legal protections provided by the trust structure.
Premiums for policies owned by an ILIT are typically paid through gifts made by the grantor to the trust. These gifts can then be used by the trustee to pay insurance premiums. To minimize gift tax concerns, annual exclusion gifts can be used when appropriate, and documented receipts or Crummey notice procedures may be implemented to support the use of annual gift tax exclusions. Establishing a reliable funding method is essential to prevent policy lapse and maintain the trust’s intended benefits. Coordination among the grantor, trustee, and the insurance carrier is important to ensure timely payments and proper recordkeeping. The trust document should specify how premiums will be funded and whether the trustee has authority to use trust assets for premium payments. Regular communication helps the trustee manage premium schedules and maintain the policy’s good standing without disrupting the trust’s structure or tax treatment.
An ILIT can help avoid probate for life insurance proceeds because the trust is the named owner and beneficiary, allowing proceeds to be distributed according to trust terms rather than passing through the probate process. In many cases, this accelerates access to funds for heirs and reduces administrative delay. However, the degree of protection from creditors can depend on timing, state law, and whether obligations such as unpaid premium gifts are properly documented and administered. To maximize probate and creditor protections, it is important to structure the trust correctly and follow formalities for transfers and funding. Discussions about creditor exposure and whether additional asset protection steps are necessary should be part of the planning process. Trustees must follow trust terms and applicable law to maintain protections and avoid actions that could expose trust assets to claims.
Tax considerations for an ILIT include potential gift tax issues when transferring an existing policy or making premium contributions to the trust, and timing rules that affect whether policy proceeds are included in the grantor’s estate. For transfers of existing policies, a commonly cited rule is that policies transferred within three years of death may still be included in the estate for tax purposes, highlighting the importance of timing. Annual exclusion strategies and proper documentation can mitigate some gift tax exposure when funding premiums. Other tax matters relate to trust accounting and any investment income generated by trust assets after policy proceeds are received. Trustees may need to file trust tax returns depending on distributions and income. Because tax rules can be complex and change over time, coordinating with tax advisors is recommended to ensure the ILIT is structured and administered in a tax‑efficient manner consistent with current law.
The trustee should be someone capable of managing fiduciary duties, including maintaining records, coordinating premium payments, and following trust distribution terms. Many people select a trusted family member or friend who understands the grantor’s wishes and can communicate with beneficiaries. In some cases, appointing a professional or corporate trustee is considered to provide continuity, administrative capacity, and objective management. The choice depends on factors such as the trust’s complexity, desired level of oversight, and the trustee’s willingness to serve. Including clear successor trustee provisions helps avoid management gaps if an initial trustee cannot serve. Trustees must act in the best interests of beneficiaries and adhere to trust terms, which can require administrative time and coordination with financial institutions and advisors. Providing written guidance and expectations within the trust document can ease the trustee’s responsibilities and reduce disputes among beneficiaries.
An ILIT should be coordinated with wills, revocable living trusts, powers of attorney, and advance health care directives to create a cohesive estate plan. Pour‑over wills can ensure that assets not directly transferred to trusts are handled according to the plan, while powers of attorney and health care directives address decision‑making during life. Misalignment between beneficiary designations and trust instructions can create conflicts, so careful review and alignment of all documents prevent unintended results or probate disputes after death. Coordination also involves reviewing retirement plan beneficiary designations, titling of property, and other accounts that might inadvertently create competing claims or undermine trust objectives. Regularly reviewing the entire plan in response to life changes and financial adjustments ensures that the ILIT continues to operate as intended and integrates smoothly with your broader legal and financial affairs.
An ILIT can be structured to support beneficiaries with special needs by providing controlled distributions that supplement rather than replace public benefits. Dedicated provisions in the trust can specify permissible uses for trust funds, such as health care, education, and maintenance, while avoiding direct distributions that might affect eligibility for needs‑based government programs. In some cases, a separate special needs trust may be recommended to preserve public benefits while providing individualized support, and an ILIT can be coordinated with such arrangements to meet multiple planning goals. When planning for a beneficiary with special needs, it is important to carefully draft trust terms and coordinate with disability benefit rules and tax considerations. Professional advice and collaboration with financial planners or benefit consultants can ensure the trust’s provisions support the beneficiary’s quality of life without unintended consequences for public assistance eligibility. Clear trustee guidance helps maintain the delicate balance between supplemental support and benefit preservation.
If a policy owned by an ILIT lapses, the intended estate planning benefits may be impaired because the life insurance proceeds are no longer available to the trust. A lapse can occur due to missed premiums, insufficient funding, or administrative oversights. To prevent this, the grantor should establish reliable premium funding arrangements, trustees should maintain diligent recordkeeping, and insurance carrier communications should be monitored to address any issues promptly and avoid policy termination. If a lapse does occur, options may be limited depending on the policy type and timing; in some instances, reinstatement may be possible under carrier rules, but this can require underwriting and additional premiums. Reviewing policy performance, funding plans, and contingency provisions during periodic trust reviews helps reduce the risk of lapse and ensures the ILIT continues to serve its intended role in the overall estate plan.
An ILIT and related estate documents should be reviewed periodically and after major life events such as marriage, divorce, births, deaths, significant changes in wealth, or updates to tax law. Regular reviews help confirm that trust provisions still reflect your wishes, that premium funding methods remain workable, and that beneficiary designations and trustee appointments are current. Making timely adjustments when circumstances change preserves the trust’s effectiveness and reduces the likelihood of disputes or unintended outcomes. We recommend scheduling a review at least every few years or whenever significant life or financial changes occur. Coordination with financial advisors and insurance agents during reviews can identify necessary policy adjustments, funding needs, or drafting refinements to better align the ILIT with evolving family objectives and legal developments.
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