An Irrevocable Life Insurance Trust (ILIT) is a planning tool many California families use to manage life insurance proceeds and reduce estate tax exposure while preserving liquidity for heirs. At the Law Offices of Robert P. Bergman, we help clients in La Habra and Orange County evaluate whether an ILIT fits within an overall estate plan that may also include a Revocable Living Trust, Last Will and Testament, Financial Power of Attorney, and Advance Health Care Directive. This guide outlines how an ILIT operates, who benefits, and practical considerations for funding, trustee selection, and coordination with other estate documents to achieve orderly administration and family protection.
Creating an ILIT requires careful planning because once a policy is transferred into the trust, the transfer is generally irrevocable and affects ownership, premium payment responsibilities, and beneficiary designations. The Law Offices of Robert P. Bergman approaches ILIT matters with attention to California probate and tax rules, ensuring that transfers, trust terms, and related documents such as Certification of Trust and Pour-Over Will are coordinated. Whether your goal is to protect policy proceeds from estate inclusion, provide for a special needs trust or retirement plan trust, or maintain liquidity for estate settlement, clear drafting and precise administration matter for successful long-term results.
An ILIT can provide several practical benefits that matter to families, including potential reduction of taxable estate value, protection of life insurance proceeds from creditor claims against an estate, and controlled distribution to beneficiaries over time. By removing ownership of the policy from the insured’s estate, proceeds payable at death generally flow through the trust according to the trust terms rather than through probate, which can speed access and preserve privacy. An ILIT also allows the grantor to set specific instructions for use of funds, such as income replacement, education for children, trust funding for minors or persons with special needs, and preserving retirement assets for beneficiaries.
The Law Offices of Robert P. Bergman has a longstanding practice focused on estate planning for California residents, including clients across San Jose, Orange County, and surrounding communities like La Habra. Robert P. Bergman and the legal team assist clients with a full range of documents such as Revocable Living Trusts, Last Wills, Financial Powers of Attorney, Advance Health Care Directives, and Trust-related petitions like Heggstad and Trust Modification Petitions. We emphasize personalized planning, careful drafting, and practical administration to meet each family’s goals while complying with state law and court procedure when needed.
An Irrevocable Life Insurance Trust is a trust into which a life insurance policy is transferred or which purchases a life insurance policy and holds it for the benefit of named beneficiaries. The trust is written so that the insured no longer owns the policy and cannot change the beneficiary designations outside the trust terms. This structure aims to remove the policy proceeds from the insured’s taxable estate while providing a trust framework to manage the funds after the insured’s death. Proper funding, timing of transfers, and trust terms are essential to achieve intended tax and probate outcomes under California law.
When setting up an ILIT, the grantor decides who will serve as trustee and who will receive trust distributions. The trustee has fiduciary duties to administer the trust consistent with the grantor’s directions and applicable law. Premiums can be paid to the trust by the grantor or through gifts to trust beneficiaries with Crummey notice powers, depending on the strategy chosen. Because the trust is irrevocable, the grantor should consider long-term goals, coordination with other estate documents, and how the trust will address tax reporting, trust administration costs, and beneficiary needs over time.
An ILIT is a trust designed specifically to hold a life insurance policy or the proceeds from a life insurance policy. After the policy is placed in an ILIT, the trust becomes the owner and beneficiary of the policy; upon the insured’s death, proceeds are paid to the trust and then distributed according to the trust terms. This mechanism can help avoid probate for the proceeds and can, in many situations, prevent the proceeds from being included in the deceased’s taxable estate. The trust document sets out terms for distribution, trustee powers, and administrative provisions necessary to manage the proceeds for intended beneficiaries.
Typical ILIT work involves drafting the trust agreement, transferring an existing policy to the trust or having the trust purchase a policy, choosing a trustee, and coordinating beneficiary designations. The process can also require annual gifting strategies to cover premium payments, preparing Crummey notices if appropriate, and ensuring the trust meets formal requirements to achieve intended tax treatment. Trustees must maintain records, handle claims, invest proceeds responsibly, and make distributions per the trust terms. Throughout, careful coordination with tax advisors and review of related estate documents keeps the overall plan consistent and effective.
Understanding the specialized vocabulary around ILITs helps clients make informed decisions. Terms such as grantor, trustee, beneficiary, assignment of policy ownership, premium gifting arrangements, and Crummey powers appear frequently in trust documents and related correspondence. Knowing what these terms mean and how they affect ownership, gift tax implications, and administration can prevent unintended outcomes. This glossary summarizes terminology commonly encountered during ILIT formation and administration so you can better navigate trustee selection, funding choices, and post-death distribution options in a practical way.
The grantor, also known as the trust creator, is the person who establishes the ILIT and typically transfers an existing life insurance policy into the trust or has the trust purchase a policy. The grantor outlines the trust’s terms, designates beneficiaries, and selects or directs the selection of a trustee. Once an ILIT is in place and funded, the grantor generally cannot revoke the trust or unilaterally reclaim the policy, so careful review of the document and related estate plan items is essential. The grantor’s decisions impact tax treatment, administration responsibilities, and how proceeds will be used for beneficiaries.
The trustee is the individual or entity appointed to hold and manage trust assets, including life insurance policies and policy proceeds when paid. Trustees have legal duties to administer the trust according to its terms and state law, which can include maintaining records, paying premiums if required, providing notices to beneficiaries, and making distributions. The trustee must act prudently, avoid conflicts of interest, and ensure compliance with tax reporting and trust administration rules. Thoughtful selection of a trustee balances reliability, availability, financial management ability, and impartiality among beneficiaries.
Beneficiaries are the individuals or entities designated to receive the trust assets or benefits from the trust once insurance proceeds become available. The ILIT’s provisions control how and when distributions are made, whether in lump sums, fixed installments, or according to conditions set by the grantor. Beneficiary designations within the trust avoid direct payouts to individual heirs and can protect funds from probate, provide support for minor children or persons with limited capacity, and preserve eligibility for public benefits where necessary. Beneficiary rights are governed by the trust instrument and applicable trust law.
Transferring an existing policy into an ILIT or having the trust purchase a new policy involves legal assignment and coordination with the insurance company, and may have gift tax considerations depending on timing. Funding mechanisms include direct payment of premiums by the trust from trust funds, or by the grantor making annual gifts to trust beneficiaries who then authorize the trustee to pay premiums, commonly implemented through limited withdrawal rights known as Crummey notices. Structuring premium payments and trust funding requires planning to avoid unintended estate inclusion and to satisfy tax reporting obligations.
When weighing options, some individuals pursue a limited approach focused solely on naming beneficiaries on a life insurance policy while others adopt a comprehensive ILIT integrated with a full estate plan. A limited approach can be faster and simpler but may leave proceeds exposed to probate, estate inclusion, or creditor claims depending on ownership and beneficiary designations. A comprehensive ILIT, paired with a living trust and related documents, offers structured distribution, greater privacy, and potential estate tax planning advantages, but requires more careful drafting, administration, and coordination across multiple legal instruments.
A limited approach that simply updates the beneficiary designation on an insurance policy may be appropriate for smaller policies or when the insured’s estate and family situation are uncomplicated. If the policy proceeds are modest, intended beneficiaries are straightforward, and there is little risk of estate tax exposure or creditor claims, updating the beneficiary and retaining current ownership may offer a practical balance of convenience and reduced legal expense. Nevertheless, even in these situations it is advisable to confirm how state law and personal circumstances may affect outcomes at the time of a claim.
A limited strategy can also be useful as a short-term or transitional measure while longer-term documents are prepared. For example, if immediate beneficiary clarity is needed or a policy change must occur quickly, updating designations can provide near-term protection. This approach may be paired with a plan to revisit full ILIT formation as part of a comprehensive estate plan. It is important to evaluate whether a temporary solution could create complications later, such as unintended estate inclusion or conflicts with future trust terms, and to plan accordingly.
A comprehensive ILIT approach can help keep insurance proceeds out of the insured’s taxable estate and away from probate processes, offering a higher level of protection for large policies or estates close to state or federal estate tax thresholds. For those with substantial assets or complex family circumstances, coordinated planning ensures the ILIT, revocable trust, wills, and powers of attorney work together to accomplish intended goals. Properly drafted trust terms and funding mechanisms reduce ambiguity about distribution timing, creditor exposure, and tax reporting, making administration smoother for trustees and families.
A full ILIT integrated with other estate planning documents allows a grantor to address complex family situations, provide for minors or beneficiaries with special needs, and set conditions or safeguards for inheritors. Through trust provisions, a grantor can specify how proceeds are allocated for education, health care, debt repayment, or ongoing support, while appointing trustees to manage assets responsibly over time. This level of control often suits families seeking to preserve assets across generations and reduce the administrative burden on heirs during a difficult period.
A comprehensive ILIT strategy provides structure for how life insurance proceeds will be handled, often keeping proceeds outside of the probate estate and aligning distributions with family needs. This approach enhances financial privacy and can protect funds from certain creditor claims against the deceased’s estate. By combining an ILIT with supporting documents such as a pour-over will, powers of attorney, and advance health care directives, the plan addresses both immediate liquidity needs and longer-term wealth transfer objectives, leading to more predictable outcomes for beneficiaries.
Beyond tax and probate considerations, a comprehensive plan clarifies roles and responsibilities for trustees, reduces the likelihood of disputes, and helps ensure that proceeds are applied in ways the grantor intended. Thoughtful integrated planning reduces surprises and prepares trustees for administrative tasks such as filing claims, managing investments, and distributing funds under trust terms. Families benefit from clear guidance and documentation that make post-death administration more efficient and aligned with the grantor’s wishes.
One core benefit of an ILIT is its potential to remove life insurance proceeds from the taxable estate when properly structured and timed. By transferring ownership out of the insured’s estate and ensuring the trust is irrevocable, proceeds typically bypass probate and can be managed privately through the trust. This feature is particularly relevant for estates that may face complex tax filings or for families seeking to ensure liquid resources are available to pay final expenses, debts, or estate taxes without forcing liquidation of other assets like real property.
An ILIT enables a grantor to set specific rules governing when and how funds are distributed, which is beneficial for managing resources for minor children, young adults, or beneficiaries with limited financial experience. The trustee’s role in investing and distributing proceeds under the trust terms protects beneficiaries from receiving large lump sums prematurely and helps preserve funds for future needs. This controlled approach supports financial stability for families and enables tailored provisions for special circumstances such as education, health care, or long-term support.
When considering an ILIT, coordinate its terms with your revocable living trust, will, powers of attorney, and advance health care directive to ensure consistent directions across all documents. Inconsistencies can lead to unintended results, contested claims, or delays during administration. Review beneficiary designations, retirement accounts, and ownership records so that assets interact predictably after death. Discuss funding strategies for premium payments and document the plan for trustees and family members to reduce confusion. This integrated approach improves clarity and efficiency when the trust must be administered.
Premium payment strategies are central to ILIT success. Common approaches include the grantor gifting funds to beneficiaries for the trust to use, or structuring direct payments from trust assets when available. In some strategies, beneficiaries are given limited withdrawal rights to create present interest gifts that qualify for the annual exclusion, often accompanied by required notices. Documenting procedures for gifting, notices, and premium receipts helps trustees demonstrate compliance with tax rules and preserves the intended tax and probate benefits of the ILIT over time.
Families and individuals often consider an ILIT to accomplish specific goals such as reducing gross estate value for estate tax purposes, providing liquidity for settling debts and taxes, and preserving confidentiality for substantial life insurance proceeds. An ILIT can be especially helpful for owners of sizable life insurance policies whose estates might otherwise face probate delays or potential estate tax exposure. The trust structure also allows precise distribution instructions that align with long-term family objectives, helping ensure that funds serve intended beneficiaries rather than being consumed by immediate expenses or administrative processes.
Other common reasons to use an ILIT include supporting a surviving spouse while preserving principal for children, funding a special needs trust without affecting public benefit eligibility, and managing funds for beneficiaries who need oversight. An ILIT also benefits families seeking to protect policy proceeds from creditor claims or uneven spending by heirs. Because each situation is unique, careful planning and review of financial circumstances, tax considerations, and family dynamics are essential before proceeding with an irrevocable trust structure.
Circumstances prompting ILIT formation include ownership of large life insurance policies, blended family concerns, the need to provide liquidity while protecting principal for future generations, or the desire to fund a trust for a beneficiary with special needs. Business owners may use ILITs to provide continuity for a surviving partner or buy-sell arrangements, and retirees may coordinate ILITs with retirement plan trusts to preserve retirement assets. Each situation requires tailored drafting to ensure the trust aligns with estate and tax planning goals while meeting family needs.
When a life insurance policy is large relative to the insured’s overall estate, the proceeds may increase the estate’s value for tax purposes or complicate probate administration. An ILIT handles such proceeds through trust ownership and distribution rules that can reduce administrative burdens and help manage potential estate tax exposure. Drafting and timing are important to ensure transfers do not create unintended inclusion of proceeds in the taxable estate, and careful coordination with financial advisors helps align insurance planning with broader estate objectives.
An ILIT can be structured to provide staggered distributions, educational funding, or ongoing support for minors and beneficiaries with limited capacity without delivering full control of funds immediately. Trust provisions may address specific ages for distribution, conditions for release of funds, or guidelines for use of proceeds that protect beneficiaries from impulsive spending or financial mismanagement. Properly drafted trust terms give trustees discretion and direction while protecting the long-term interests of vulnerable beneficiaries, promoting stability and responsible stewardship of inherited assets.
Families concerned about creditor claims, bankruptcy exposure, or disputes over estate assets may use an ILIT to reduce the risk that insurance proceeds are subject to claims against the deceased’s estate. When ownership and beneficiary designations are handled through the trust, proceeds are distributed according to trust terms rather than being subject to probate distribution rules. While no arrangement guarantees absolute protection from all creditors in every scenario, a carefully structured ILIT provides significant advantages in many common creditor and contested estate situations.
The Law Offices of Robert P. Bergman serves clients in La Habra and throughout Orange County by providing practical guidance on creating and administering ILITs and related estate planning tools. We listen to each client’s objectives, explain available options, and help design a plan that aligns with family needs and state law. From drafting the trust document and coordinating policy transfers to advising on premium funding and trustee responsibilities, our approach focuses on clear communication and thorough preparation to make the administration process more straightforward for trustees and beneficiaries alike.
Clients choose the Law Offices of Robert P. Bergman for thoughtful, client-centered estate planning that addresses both immediate and long-term concerns. We bring practical experience working with a variety of trust instruments including Revocable Living Trusts, Pour-Over Wills, and trust-related petitions, ensuring ILIT documents are integrated with the rest of the estate plan. Our goal is to provide clear guidance, help avoid common pitfalls, and prepare the necessary documentation so trustees can act efficiently when the policy proceeds are paid.
We assist with technical tasks such as coordinating the transfer of policy ownership, drafting trust provisions that reflect client objectives, preparing Crummey notices when appropriate, and advising on trustee duties and recordkeeping. Our practice also helps clients anticipate administrative steps after a benefit event, including filing claims, managing investments, and distributing proceeds per trust terms. By addressing both drafting and administration, we aim to reduce uncertainty and improve outcomes for families at critical moments.
When requested, we work with financial advisors, tax professionals, and insurance carriers to implement ILIT strategies that fit the client’s financial circumstances. Collaboration with other advisors helps ensure funding mechanisms are practical and tax consequences are considered, while written documentation clarifies expectations for trustees and beneficiaries. Our approach values timely communication and careful planning to help families protect assets and provide for future generations according to their wishes.
Our process begins with an in-depth review of your current estate plan, life insurance ownership, and family objectives to determine whether an ILIT suits your needs. We then prepare the trust document, coordinate policy assignment or trust purchase, and advise on premium payment strategies including annual gifting when applicable. If trustees or successor trustees need instruction, we provide practical guidance and documentation to help them fulfill their duties. Throughout, we maintain communication with you and other advisors to ensure the plan is implemented correctly and remains aligned with goals.
In the first phase we collect background information about existing policies, beneficiary designations, asset values, and family circumstances. We discuss the client’s objectives for the ILIT—such as estate tax planning, protection for beneficiaries, or coordination with other trusts—and evaluate timing and transfer considerations to avoid unintended estate inclusion. Based on this review, we recommend drafting options and funding strategies and outline the steps necessary to execute the trust and related documents.
Collecting current policy statements, beneficiary designation forms, trust documents, and financial records is essential to determine how a proposed ILIT will interact with an existing estate plan. We verify policy ownership, review cash values if any, and confirm carrier procedures for assignment or trust ownership. This document review helps identify potential conflicts or opportunities to coordinate instruments such as Revocable Living Trusts and Pour-Over Wills so that the ILIT functions as intended when administered.
After understanding ownership and objectives, we outline funding strategies for premium payments and trustee selection. Options may include the grantor making annual gifts to the trust beneficiaries, direct contributions when the trust has assets, or arranging the trust to purchase a new policy. We discuss the implications of each approach, including gift tax considerations, and propose trustee responsibilities and successor appointment procedures to ensure continuity and responsible administration.
In the drafting stage, we prepare the ILIT document tailored to the client’s objectives, incorporating terms for trustee powers, distribution rules, and administrative procedures. We coordinate signature execution, policy assignment paperwork with the insurance carrier if transferring an existing policy, and any supporting documents such as Certification of Trust or beneficiaries’ notices. Clear instructions for trustees regarding premium handling, recordkeeping, and post-death procedures are included to reduce ambiguity and streamline future administration.
The trust instrument sets out the trust’s purpose, trustee powers, distribution standards, and successor trustee arrangements. If the funding approach uses gifts with limited withdrawal rights, we prepare the required notices and document the process so trustees can demonstrate compliance with applicable rules. We also draft ancillary documents such as Certification of Trust to facilitate interactions with financial institutions and insurance companies while protecting sensitive trust details.
Once the trust is signed, we coordinate with the insurance company to effect a change of ownership and beneficiary designation to the trust or to have the trust purchase a new policy. We communicate with financial advisors to confirm premium funding mechanics and to align the ILIT with broader investment and retirement planning strategies. This coordination helps ensure that administrative steps are completed correctly and in the proper order to preserve the intended benefits of the ILIT.
After the ILIT is established, trustees must manage premium payments, document gifts and notices, keep detailed records, and be prepared to file claims and administer distributions after the insured’s death. We provide guidance on trustee responsibilities, necessary filings, and best practices for investment and distribution decisions. If disputes or petitions such as Heggstad or Trust Modification Petitions arise, we assist with procedural steps to resolve issues and keep the administration aligned with the trust’s terms and the grantor’s intent.
Trust administration requires maintaining accurate records of premium payments, beneficiary notices, investment activity, and distributions. Trustees should follow the trust’s requirements for reporting to beneficiaries, preserve receipts and notices for tax purposes, and handle investment decisions prudently in line with the trust’s objectives. Clear recordkeeping and regular communication with beneficiaries reduce potential conflict and demonstrate that the trustee is fulfilling fiduciary duties responsibly.
When a life insurance claim is filed, the trustee submits required documentation to the carrier, receives proceeds into the trust, and then follows trust provisions to make distributions or investments. Trustees should ensure proper beneficiary identification, resolve any outstanding policy endorsements, and consult with tax advisors about any reporting obligations. The trustee’s careful handling of claims and distributions facilitates a smoother transition for beneficiaries and preserves the grantor’s intent through orderly administration.
An Irrevocable Life Insurance Trust is a legal arrangement where a trust owns a life insurance policy or receives proceeds from a policy upon the insured’s death, with distribution terms set by the trust instrument. The trust is irrevocable, meaning the grantor typically cannot reclaim ownership of the policy once the transfer is complete. This structure aims to separate the policy proceeds from the deceased’s probate estate, enabling the trustee to administer and distribute funds according to the grantor’s instructions while generally enhancing privacy and orderly transfer for beneficiaries. People use an ILIT to address several planning objectives such as preserving liquidity for estate settlement, controlling how proceeds are used for heirs, and potentially managing estate tax exposure. Deciding whether an ILIT is appropriate requires consideration of policy size, estate composition, and family needs. Careful drafting, timing of transfers, and coordination with other estate documents help ensure the ILIT functions as intended and reduces the chance of unintended tax or probate consequences.
Transferring a life insurance policy to an ILIT can, in many situations, remove the policy proceeds from the grantor’s taxable estate, which may reduce estate tax exposure if the estate is large enough to face such taxes. The key factor is that the grantor must not retain incidents of ownership over the policy at death; if ownership or certain control remains, proceeds can be included in the estate. Proper structuring and timing of the transfer are essential to achieve the desired estate tax treatment under federal and state rules. There are timing rules to consider, so transfers should be planned with attention to potential look-back periods and the possibility of the three-year rule under federal estate tax regulations. Because tax consequences vary by situation, consulting with a tax professional in addition to legal counsel helps ensure that transfers and ILIT terms align with the client’s tax planning objectives and that any gifting strategies are properly documented and administered.
Serving as trustee of your own ILIT may undermine the goal of removing the policy from your taxable estate because trustees with certain powers or control can cause the policy proceeds to be considered part of your estate at death. Many grantors therefore appoint an independent trustee or a combination of personal and corporate trustees to preserve the intended tax and administrative benefits. When selecting a trustee, it is important to avoid arrangements that leave the grantor with retained ownership rights over the policy or administrative control that would cause estate inclusion. If a grantor is named as trustee, the trust should be drafted to limit powers that could be construed as incidents of ownership, and successor trustees should be clearly designated. Whether the grantor can serve in some limited role depends on specific drafting and the client’s objectives. Legal counsel can explain which trustee powers are acceptable and design arrangements that balance the grantor’s comfort with the need to preserve the trust’s intended benefits.
Under federal tax rules there is a potential look-back period that can affect how transfers to an ILIT are treated. Transfers made less than three years before the insured’s death may be included in the insured’s taxable estate for estate tax purposes in certain circumstances. This timing rule exists to prevent last-minute transfers from being used to avoid estate inclusion and to ensure that transfers are genuine rather than temporary measures intended to circumvent tax obligations. Because of the three-year rule, clients often make transfers well in advance of expected need and review their overall estate plan to reduce the risk that proceeds will be included in the taxable estate. When timing is tight, alternative strategies may be discussed to accomplish similar objectives, and professional advice helps determine the best approach given health, policy terms, and family circumstances.
Once a policy is owned by an ILIT, premium payments must be handled in a way that supports the trust’s funding goals and preserves the legal structure. Common methods include the grantor making annual gifts to beneficiaries who then permit the trustee to use those gifts to pay premiums, or the trust holding funds to directly make premium payments when appropriate. The chosen approach affects gift tax implications and requires careful documentation to demonstrate that gifts and payments comply with rules for annual exclusion or other tax provisions. Trustees should keep clear records of premium receipts and any notices sent to beneficiaries when using gift strategies. If the grantor plans to use annual gift exclusion powers, timely notices and documentation of beneficiary consents are important. Clear communication between the grantor, trustee, and any financial advisors helps ensure premiums are paid smoothly without jeopardizing the trust’s intended benefits or creating administrative confusion.
An ILIT can be tailored to provide for a beneficiary with special needs without disqualifying that person from public benefits, provided the trust is drafted with appropriate safeguards. Often, a separate special needs trust is funded by the ILIT to preserve eligibility for means-tested benefits while providing supplemental support. The trust terms must be carefully written to avoid direct distributions that would count as available income or assets for benefit eligibility, while allowing the trustee to use funds for approved supplemental needs such as medical care, education, or enrichment. Coordination with a qualified special needs planning attorney and a knowledge of public benefits rules is essential when structuring such an arrangement. The trustee’s role includes understanding allowable expenditures, maintaining documentation, and ensuring distributions do not jeopardize the beneficiary’s access to benefits. Properly structured ILIT-funded arrangements provide both protection and flexibility for vulnerable beneficiaries.
A Crummey notice is a formal written notification provided to trust beneficiaries that informs them of a right to withdraw a gift contributed to the trust for a limited period, designed to create a present interest that qualifies for the annual gift tax exclusion. Crummey powers allow annual gifts to the trust to be treated as present interest gifts, which can help cover premium payments without triggering gift tax liabilities. Notices must be provided in the form and within the timeframe specified in the trust and applicable rules to achieve the desired tax treatment. Using Crummey notices requires careful administration, including clear documentation of the notice delivery, time limits for withdrawal, and how withdrawals were handled if exercised. Trustees should understand the process and maintain records to support the annual exclusion claims. Legal counsel can draft the notices and trust language to reflect client goals and reduce administrative ambiguity.
Choosing the right trustee involves balancing trustworthiness, administrative capability, and availability to manage trust duties over time. Some clients appoint a trusted family member or friend with personal knowledge of the family dynamics, while others choose a corporate trustee or professional fiduciary to handle recordkeeping, investment oversight, and tax reporting. Many choose a combination, naming an individual as initial trustee and a corporate or third-party successor to ensure continuity and professional administration when needed. Considerations include the trustee’s ability to communicate with beneficiaries, handle financial affairs, and follow trust provisions impartially. It’s also important to name successor trustees and provide guidance about how discretionary decisions should be made. Discussing potential trustee arrangements with advisors helps ensure the chosen person or entity can meet the trust’s long-term needs and responsibilities.
An ILIT typically keeps insurance proceeds out of probate when the trust is properly funded and the carrier pays proceeds to the trust as beneficiary or when the trust owns the policy. Because the trust, not the deceased’s estate, receives the proceeds, the funds are distributed according to the trust terms rather than through probate administration. This can speed access to funds for beneficiaries and preserve privacy by avoiding public probate records. Nevertheless, some complementary assets or claims may still involve probate depending on other aspects of the estate plan. While an ILIT can efficiently handle life insurance proceeds, full probate avoidance for all assets requires broader estate planning measures such as a revocable living trust. It is important to evaluate the entire estate for items that may still be subject to probate and to coordinate the ILIT with wills, beneficiary designations, and trust documents to achieve the intended outcome for each asset type.
An ILIT and a revocable living trust serve different but complementary roles in an overall estate plan. A revocable living trust holds assets the grantor wants to manage and distribute without probate while retaining flexibility during the grantor’s lifetime. An ILIT specifically manages life insurance ownership and proceeds, often with the goal of removing insurance proceeds from the taxable estate and controlling distribution to beneficiaries. Coordinating the two ensures that assets and beneficiary designations do not conflict and that liquidity needs are met alongside long-term distribution objectives. When both instruments are used together, a pour-over will, certification of trust, and consistent beneficiary designations help integrate the ILIT with the living trust and other estate documents. Clear drafting prevents unintended duplication or gaps in planning and makes administration easier for trustees and fiduciaries. Legal review of both instruments ensures alignment with the client’s overall objectives and family needs.
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