An Irrevocable Life Insurance Trust (ILIT) is a powerful estate planning tool that can help preserve life insurance proceeds for beneficiaries while reducing estate tax exposure and protecting policy proceeds from creditors and probate. In UC Irvine and throughout Orange County, the Law Offices of Robert P. Bergman prepares ILITs tailored to individual family dynamics, asset structures, and long-term planning goals. This guide explains how an ILIT works, who may benefit, and how it interacts with other estate planning instruments such as revocable living trusts, pour-over wills, and advance health care directives to create a cohesive legacy plan.
Deciding to create an ILIT involves coordinating life insurance ownership, gift tax considerations, trustee selection, and beneficiary designations. The ILIT removes ownership of a life insurance policy from the insured’s taxable estate when properly funded and managed, but it requires careful drafting and administration. In many UC Irvine households, an ILIT is used alongside retirement plan trusts, special needs trusts, and pour-over wills to deliver liquidity at death while preserving family privacy. This overview provides practical steps to evaluate whether an ILIT aligns with your objectives and how the planning process typically unfolds.
An ILIT offers several potential advantages for families seeking to manage tax exposure, provide immediate liquidity to heirs, and keep life insurance proceeds out of probate. By transferring ownership of a policy into an ILIT, the policy proceeds generally are excluded from the insured’s estate for estate tax purposes, provided certain rules are followed. An ILIT can also protect proceeds from creditor claims and ensure that distributions are made under terms set by the grantor, which can be important for beneficiaries with special needs or those who may require oversight. Proper trustee selection and consistent administration are important to achieve the intended benefits.
The Law Offices of Robert P. Bergman serves clients across California from a practice that focuses on practical, client-focused estate planning. Our team helps families in UC Irvine and Orange County design ILITs and related documents such as revocable living trusts, wills, and health care directives. We emphasize clear communication and personalized plans that reflect each client’s financial situation and family priorities. Whether you are integrating an insurance policy into an existing trust structure or establishing a new ILIT to preserve family wealth, we provide thorough document preparation and guidance through funding and trustee coordination.
An ILIT is an irrevocable trust created to own and control one or more life insurance policies on the grantor’s life. Once the trust owns the policy, the insured typically no longer has incidents of ownership, which helps remove the death benefit from the taxable estate. The trust terms determine who receives policy benefits and how those proceeds are used, whether for income replacement, paying estate taxes, supporting minor children, or providing for a dependent with special needs. Establishing an ILIT also involves gift tax planning and thoughtful coordination with trustees and insurance carriers to ensure the policy is properly transferred and maintained.
Funding an ILIT can occur through transferring an existing policy into the trust or having the trust purchase a new policy. When existing policies are transferred, the seven-year rule can affect estate inclusion, and gifts to the trust for payment of premiums must be managed to avoid unintended tax consequences. Trustees are responsible for accepting gifts, paying premiums, and distributing proceeds according to the trust’s provisions. A well-drafted ILIT addresses successor trustees, distribution standards, and tax reporting responsibilities to reduce administrative complications and maintain alignment with the grantor’s goals.
An Irrevocable Life Insurance Trust is a trust into which a person transfers ownership of a life insurance policy or arranges for the trust to purchase a policy on that person’s life. The trust is irrevocable, meaning the grantor generally cannot change or revoke it after execution. The purpose is to keep the policy’s death benefit outside the grantor’s probate estate, provide clear instructions for distribution, and potentially protect proceeds from creditors. The trust is governed by the terms set by the grantor and administered by a trustee who manages policy payments, tax reporting, and benefit distribution to named beneficiaries.
An effective ILIT includes several core elements: clear trust terms identifying beneficiaries and distribution standards, naming a reliable trustee and successor trustees, instructions for paying premiums, and provisions for policy replacement or termination. Administrative processes involve funding the trust, completing beneficiary designations, and ensuring gifts for premium payments are handled properly to avoid gift tax pitfalls. Trustees must maintain accurate records, coordinate with insurance carriers, and follow the trust terms when distributing proceeds. Proactive administration is essential to preserve the intended estate planning benefits of the ILIT.
The following glossary defines terms frequently used in ILIT planning so clients in UC Irvine can better understand documents and conversations with counsel. Familiarity with these terms helps when choosing trustees, funding the trust, and coordinating with insurance agents and financial advisors. Clear definitions of ownership incidents, grantor, beneficiary, trustee, and taxable events such as gifts and estate inclusion reduce surprises and support informed decision making. Understanding terminology ensures the ILIT functions as intended and integrates with other estate planning instruments.
The grantor is the person who creates and funds the trust. In an ILIT context, the grantor is typically the insured whose life is covered by the policy. The grantor’s decisions determine the trust’s terms, whom the trustees will pay, and how the proceeds will be used. Because an ILIT is irrevocable, the grantor generally cannot unilaterally change the trust after it has been established. The grantor may provide guidance for distribution timing, uses for proceeds, and appoint trusted individuals to serve as trustee and successor trustees.
An irrevocable trust is a trust that cannot be revoked or amended by the grantor after its creation under normal circumstances. This permanence is what allows an ILIT to potentially remove life insurance proceeds from the grantor’s taxable estate. Because control over the policy shifts to the trust, the grantor gives up certain ownership rights; in exchange, beneficiaries can receive protections and tax advantages. Drafting must carefully account for the intended administration, funding mechanism for premium payments, and succession planning for trustees to ensure the trust operates smoothly over time.
The trustee is the individual or entity charged with administering the trust according to its terms. In an ILIT, the trustee accepts ownership of the life insurance policy, manages premium payments, and ensures the proceeds are distributed to the beneficiaries as directed. Trustees have fiduciary responsibilities to act in beneficiaries’ best interests, maintain records, and comply with reporting obligations. Choosing an appropriate trustee involves considering reliability, financial competence, and willingness to perform administrative tasks such as coordinating with insurers and handling tax filings.
A Crummey power is a temporary withdrawal right granted to trust beneficiaries, typically included in ILITs to allow annual contributions to qualify for the annual gift tax exclusion. When the grantor makes a gift to the ILIT to cover premium payments, beneficiaries receive notice of a limited right to withdraw contributions for a short period, which allows the transfer to be treated as a present interest gift. Properly implemented Crummey notices and procedures help preserve favorable gift tax treatment while enabling the trustee to use contributions to maintain the life insurance policy.
When evaluating an ILIT versus alternatives, consider objectives such as tax planning, probate avoidance, asset protection, and liquidity needs at death. A revocable living trust offers flexibility and control during life but does not remove assets from the taxable estate. An ILIT specifically addresses life insurance proceeds and can provide immediate liquidity and tax benefits in appropriate circumstances. For individuals with taxable estates or who want to ensure life insurance proceeds are managed for dependent beneficiaries, an ILIT may fit well within a broader plan that also includes wills, health care directives, and specialized trusts where needed.
A limited approach may be appropriate when an individual’s overall estate falls well below federal and applicable state estate tax thresholds, and the primary goal is simply to ensure immediate funds for final expenses. In such cases, maintaining life insurance ownership in a revocable trust or naming beneficiaries directly may achieve practical objectives without the permanence of an ILIT. The homeowner or insured should still coordinate beneficiary designations and retirement plan beneficiary forms to ensure that the intended individuals receive the proceeds in a timely manner and with minimal administrative delay.
Some clients prioritize maintaining flexibility during their lifetime, preferring the ability to change policy ownership or beneficiaries without formal trust amendments. In that situation, keeping a life insurance policy in a revocable living trust or in personal ownership with clear beneficiary designations may be preferable. This approach allows for adjustments as family circumstances change, while relying on other planning tools to address probate, incapacity, and health care decision-making. It is important to weigh administrative ease against potential long‑term tax and creditor considerations before choosing a simpler path.
A comprehensive approach is often necessary when life insurance is one element of a more complex estate plan that includes retirement accounts, real estate, special needs planning, and business succession concerns. An ILIT must be coordinated with beneficiary designations, powers of attorney, healthcare directives, and revocable trusts to ensure that each document functions together as intended. Without coordination, conflicts or unintended tax consequences may arise. Comprehensive planning considers the entire asset picture and aligns document provisions to achieve the client’s long-term goals for asset distribution and family support.
Clients seeking to protect life insurance proceeds from creditor claims or to manage estate tax exposure typically benefit from a thorough plan that integrates an ILIT with other tools such as irrevocable trusts, retirement plan trusts, or special needs trusts. A comprehensive strategy addresses selection of trustees, beneficiary protections, and funding mechanics so that policy proceeds fulfill intended purposes, whether providing for minor children, supporting a dependent with disabilities, or supplying funds to pay estate taxes. Careful drafting and ongoing administration help maximize the protective and planning benefits of the ILIT.
A comprehensive estate planning approach provides clarity and cohesion across all documents and assets, which helps prevent conflicting instructions and reduces the risk of probate delays or tax surprises. When an ILIT is integrated with revocable trusts, wills, and health care directives, clients achieve coordinated outcomes that reflect family priorities and financial realities. This approach creates a roadmap for trustees and family members to follow, simplifies administration after death, and helps ensure policy proceeds are used as intended for liquidity, debt settlement, or beneficiary support.
Comprehensive planning also enhances protections for beneficiaries who may need oversight or special care. By aligning ILIT distribution provisions with special needs trusts or guardianship nominations, clients can provide for vulnerable family members without jeopardizing eligibility for public benefits. A cohesive plan reduces uncertainty for heirs, facilitates smoother transitions, and preserves assets through thoughtful coordination of ownership, beneficiary designations, and trustee responsibilities. Regular review of the plan ensures continued alignment with changes in family status or law.
When an ILIT is drafted and administered as part of an integrated estate plan, it is more likely to achieve desired tax and administrative outcomes. Coordinated documents help reduce the risk that a policy will be pulled back into the estate or that beneficiary designations will create unintended tax liabilities. A comprehensive review considers retirement accounts, joint ownership interests, and other potential estate inclusions so that the ILIT stands on a solid foundation. Clear instructions for trustees and regular plan updates help maintain the intended benefits over time and through life changes.
A well-integrated ILIT offers beneficiaries clearer protections and predictable distributions, which can be critical for families managing special needs or blended family dynamics. By setting out distribution standards, successor trustee arrangements, and provisions for handling policy replacement or premium shortfalls, the plan reduces conflicts and ensures that proceeds are used in ways the grantor intended. This certainty protects beneficiaries from protracted disputes and provides confidence that administrative steps will be followed to preserve family wealth and fulfill the grantor’s legacy objectives.
When creating an ILIT, ensure that the life insurance policy’s ownership and beneficiary forms match the trust’s terms. Transfers of existing policies must be done with clear documentation and timely notification to the insurer to avoid administrative errors. If the trust will purchase a new policy, coordinate premium payment methods and plan for annual contributions. Maintaining consistency across policy documents and trust provisions minimizes the risk of the policy being treated as part of the insured’s estate, and it reduces potential disputes among beneficiaries and family members during administration.
An ILIT is a long-term arrangement that benefits from periodic review, especially after major life events such as marriage, divorce, birth of children, or significant changes in asset values. Regular reviews ensure that trustee appointments remain appropriate, beneficiary designations reflect current wishes, and funding mechanisms continue to work with available resources. Life insurance options and tax rules can change over time, so maintaining ongoing oversight keeps the plan aligned with goals. Updating the trust or related documents when circumstances change preserves intended protections and helps avoid unintended consequences.
Consider an ILIT if you want to provide immediate liquidity at death while aiming to limit the inclusion of life insurance proceeds in your taxable estate. An ILIT can help protect proceeds from probate and creditor claims when properly structured, and it allows you to set distribution terms tailored to beneficiaries’ needs. For individuals with significant assets, business interests, or beneficiaries who require oversight, an ILIT can be a central component of a careful estate plan. The decision should be made after reviewing retirement accounts, property ownership, and family circumstances to ensure coordination across documents.
Another reason to consider an ILIT is to provide for dependent family members, such as minor children or beneficiaries with disabilities, without jeopardizing access to public benefits. By directing life insurance proceeds into trust arrangements designed to preserve eligibility or to provide structured support, the grantor can achieve both protection and tailored support. Additionally, an ILIT can be a useful tool for business owners who want to ensure continuity and fund buy-sell arrangements, or for clients seeking to create a tax-efficient vehicle for transferring wealth to the next generation with defined safeguards.
Families often consider an ILIT when they have sizable life insurance needs tied to estate taxes, business succession, or special needs planning. An ILIT may also be appropriate when beneficiaries would benefit from controlled distributions, when privacy is a concern, or when creditor protection for insurance proceeds is a priority. Clients with retirement accounts or jointly owned assets that complicate estate calculations may use an ILIT to provide liquidity for taxes and debts. Each situation requires individualized planning to determine whether an ILIT is the best tool compared with alternatives.
Individuals with estates approaching or exceeding applicable estate tax thresholds may consider an ILIT as part of an overall tax mitigation strategy. An ILIT can remove policy proceeds from the taxable estate when properly structured, helping to provide liquidity for tax liabilities and maintaining family assets. This planning often runs alongside other measures, including lifetime gifting, irrevocable trusts, and retirement account planning, to achieve a balanced approach to wealth transfer and tax management that reflects family priorities and legal considerations.
When beneficiaries include minors, individuals with disabilities, or family members who may need financial oversight, an ILIT can provide a structured way to manage life insurance proceeds. Trust terms can specify timing and conditions for distributions, appoint trustees to oversee funds responsibly, and include protections that preserve benefit eligibility where appropriate. The ability to tailor distributions and appoint trusted fiduciaries allows grantors to balance support with safeguards, ensuring that resources serve beneficiaries’ long-term needs while minimizing the risk of misuse or mismanagement.
Business owners frequently use life insurance in succession planning to provide liquidity for buy-sell agreements, pay estate taxes, or compensate heirs who do not take over operations. Placing a policy in an ILIT can keep proceeds available to the business or heirs while helping separate that asset from the owner’s taxable estate. Trust terms can be tailored to coordinate distributions with corporate agreements or partnership arrangements. Thoughtful planning ensures that proceeds are available for business continuity needs without creating unintended estate or tax complications.
The Law Offices of Robert P. Bergman provides local estate planning services to residents of UC Irvine and the surrounding Orange County communities. We assist clients in designing ILITs, coordinating life insurance ownership, and integrating these trusts with revocable living trusts, wills, and health care directives. Our practice emphasizes clear communication and practical solutions tailored to each family’s situation. From initial planning and trust drafting to funding and trustee coordination, we help clients put in place a plan that serves long-term family needs and administrative realities.
Clients come to the Law Offices of Robert P. Bergman for clear, practical estate planning that addresses both current needs and future contingencies. Our approach focuses on listening to family goals and translating them into documents that are legally sound and administrable. We emphasize coordination across documents—revocable living trusts, pour-over wills, health care directives, and power of attorney—to ensure a cohesive plan. We also guide clients through the funding process and the administrative steps trustees must follow to preserve intended outcomes for policy proceeds.
In UC Irvine, clients benefit from working with a local attorney who understands Orange County practices and the mechanics of coordinating with insurance carriers and financial advisors. We help clients evaluate whether an ILIT fits their overall plan, determine funding strategies, and draft trust provisions that reflect their wishes. Our process includes preparing necessary notices, coordinating beneficiary designations, and outlining trustee responsibilities to reduce administrative surprises and help ensure policy proceeds are managed as intended.
We also assist clients with related documents that commonly accompany an ILIT, such as pour-over wills, certification of trust, HIPAA authorizations, guardianship nominations, and powers of attorney. By offering a full suite of estate planning services, we help clients address incapacity planning and end-of-life preferences alongside wealth transfer goals. Regular reviews and updates ensure the plan adapts to life changes, helping UC Irvine families maintain a modern and effective estate plan.
Our firm follows a structured process to design and implement an ILIT that aligns with your goals. We begin with a comprehensive assessment of assets, beneficiaries, and existing documents. Next, we recommend trust terms, trustee arrangements, and funding options, then draft the ILIT and related documents. We coordinate the transfer or issuance of policies to the trust, prepare any necessary notices, and provide instructions for trustees. Ongoing support and review services help ensure the ILIT continues to function correctly as circumstances evolve.
The initial phase collects details about your financial picture, existing life insurance policies, family structure, and long-term objectives. We review current estate documents, beneficiary designations, and retirement accounts to identify coordination needs. This information allows us to recommend whether an ILIT is appropriate and how it should be funded. During this stage, we discuss trustee choices, possible distribution provisions, and timing considerations to ensure the planned structure meets your goals while minimizing unintended tax or administrative complications.
We thoroughly review existing estate planning documents, life insurance policies, retirement account beneficiary forms, and property ownership to identify potential conflicts or opportunities for coordination. This review helps us draft trust provisions that integrate seamlessly with your current plan. Understanding the full asset picture enables us to address issues such as beneficiary mismatches or jointly owned property that could affect the ILIT’s intended benefits. Clear analysis at this stage reduces the risk of surprises later in the planning and funding process.
We spend time clarifying your objectives for the ILIT, including beneficiary priorities, liquidity needs at death, and any protections for heirs who may require oversight. We discuss trustee options and the duties trustees must perform to maintain the policy. Choosing the right trustee and outlining successor arrangements are essential decisions addressed early so the trust can be structured to ease administration and align with family expectations.
In drafting the ILIT, we prepare clear trust language that defines ownership, distribution standards, trustee powers, and funding mechanisms. We coordinate with insurance carriers to transfer policies or to have the trust purchase new coverage. The execution process includes signing the trust, completing any necessary assignments or change‑of‑ownership forms, and preparing Crummey notices if annual exclusion gifts will be used to pay premiums. We provide clients and trustees with the documents and instructions needed for proper administration after signing.
We handle the administrative steps required to transfer an existing policy into the ILIT or to have the trust purchase a new policy. This includes submitting assignments, change of owner forms, and beneficiary designations as well as coordinating with the insurance agent to confirm acceptance. Proper coordination ensures the policy is owned by the trust and that naming and payment details reflect the trust’s funding plan, reducing the chance of errors that might compromise the trust’s benefits.
After executing the trust documents, we prepare and provide necessary notices to beneficiaries for Crummey powers where applicable, and we outline how gifts to the trust should be made to pay premiums. Trustees receive step-by-step instructions for receiving contributions, issuing notices, and making premium payments. Clear post-execution guidance helps trustees comply with tax and administrative practices and preserves the intended separation of the policy from the grantor’s taxable estate.
Once the trust is funded and the policy is in place, ongoing administration includes regular premium payments, recordkeeping, and periodic reviews to ensure continued alignment with estate planning goals. Trustees should maintain careful records of gifts, Crummey notices, and premium payments. We offer review services to update trust provisions, trustee appointments, and related documents as family circumstances or relevant laws change, ensuring the ILIT remains functional and continues to meet the family’s needs over time.
Trustees play an important role in maintaining accurate records of all transactions related to the ILIT, including gift receipts, notices sent to beneficiaries, premium payments, and communications with insurance companies. Proper recordkeeping supports compliance with tax rules and preserves the integrity of the trust’s benefits. We provide trustees with templates and guidance on what to record and how to handle routine administrative tasks to reduce the likelihood of errors during trust administration or at the time of claim.
Periodic plan reviews are essential to confirm that the ILIT and related estate planning documents still reflect current wishes and legal standards. Life events such as marriage, divorce, births, deaths, or changes in asset values may necessitate revisions elsewhere in the estate plan even if the ILIT itself is irrevocable. We recommend scheduled reviews to adjust beneficiary designations, update related documents, and confirm trustee arrangements. These reviews help ensure the overall plan continues to serve intended goals while adapting to changing circumstances.
An Irrevocable Life Insurance Trust is a trust created to own life insurance policies on the grantor’s life, with the aim of keeping policy proceeds outside of the grantor’s probate estate when properly structured. The trust becomes the policy owner and beneficiary, and the trustee manages premium payments and distributions according to the trust’s terms. Because the trust is irrevocable, the grantor gives up certain ownership rights, which is the mechanism that allows the proceeds to be excluded from the estate for estate tax purposes when the applicable rules are met. The trust document sets out who will receive benefits, how and when distributions are to be made, and how trustees should handle premium payments and tax reporting. Trustees often coordinate with insurance carriers, financial advisors, and the grantor to ensure the policy remains in force and the trust is funded appropriately. Proper drafting and administration are essential to achieve the intended sheltering of proceeds and to prevent unintended inclusion in the estate.
Funding an ILIT typically involves gifts to the trust so the trustee can pay life insurance premiums. These gifts can qualify for the annual gift tax exclusion if structured as present interest gifts, commonly using Crummey withdrawal powers to create a brief window during which beneficiaries may withdraw amounts. When properly implemented, annual gifts used to pay premiums may avoid gift tax reporting or reduce lifetime gift tax exposure, though larger transfers should be evaluated in the context of yearly exclusion limits and overall gifting strategy. Estate tax treatment depends on timing and whether the insured retains incidents of ownership at death. If the policy is transferred to the trust within three years of death, certain rules may cause the proceeds to be included in the estate. Funding strategies and timing should therefore be considered with an eye to both gift tax and estate tax consequences, and regular review helps maintain the plan as laws and personal circumstances change.
Transferring an existing life insurance policy into an ILIT is a common approach, but it must be handled carefully. The transfer typically requires completing an assignment or change-of-owner form with the insurance company so that the trust becomes the new owner and beneficiary. It is important to confirm that the insurer’s procedures are followed precisely and that the trust’s terms allow the trustee to hold and manage the policy as intended. One important consideration is the three-year rule, which can result in the policy proceeds being included in the insured’s estate if the transfer occurs within three years of the insured’s death. For this reason, some clients choose to purchase a new policy within an ILIT or transfer policies well in advance of anticipated estate events. Consulting with counsel during the transfer process helps avoid unintended consequences.
Selecting a trustee is an important decision because the trustee will manage premium payments, maintain records, and distribute proceeds according to the trust’s terms. Trustees should be reliable, organized, and comfortable managing financial and administrative tasks. Many clients choose a trusted family member, a close friend with financial acumen, or a professional fiduciary, keeping in mind the duties and potential time commitment involved in trust administration. It is also wise to name successor trustees to avoid interruptions in administration, and to provide clear guidance in the trust document about the trustee’s powers and responsibilities. The trust can authorize co-trustees, corporate trustees, or combinations of individuals and institutions, depending on the family’s needs and the complexity of the trust’s provisions.
Crummey powers create a short-lived withdrawal right for beneficiaries when a gift is made to the trust, allowing the gift to qualify as a present interest for annual gift tax exclusion purposes. Including Crummey notice procedures enables the grantor’s annual premium contributions to be treated under the exclusion, which reduces the need to use lifetime gift tax exemptions for routine premium funding. The trust must include clear withdrawal rights and provide beneficiaries with timely notices to preserve the tax treatment. Administratively, trustees must issue proper notice of the withdrawal opportunity and document whether beneficiaries exercise their rights. Often, beneficiaries do not exercise withdrawals because the amounts are intended to maintain the insurance policy, but following formal notice procedures preserves the desired gift tax treatment and supports proper trust administration.
An ILIT typically focuses on life insurance ownership and benefits, while a revocable living trust and a will address broader asset distribution and incapacity planning. A revocable living trust can hold other assets, manage property during incapacity, and avoid probate for trust assets, whereas an ILIT specifically handles life insurance proceeds and the rules for those proceeds. A pour-over will often works alongside these trusts to ensure any assets not placed into trusts during life are transferred into the revocable trust at death for administration. Coordination ensures beneficiary designations and ownership align with the overall estate plan and that the combined documents accomplish the grantor’s objectives. Reviewing how retirement accounts, joint property, and beneficiary forms interact with an ILIT and revocable trust reduces the risk of conflicting instructions and unintended tax or probate consequences.
When the insured dies, the life insurance company pays the policy’s death benefit to the ILIT as the named beneficiary and owner of the policy. The trustee then administers the proceeds according to the trust terms, which may include distributing funds to beneficiaries, holding assets for future needs, paying estate expenses, or providing liquidity for taxes. Proper trust language and trustee guidance determine whether proceeds are paid outright, held for income needs, or allocated under specific distribution standards. Trustees must follow any claim filing and documentation requirements set by the insurer, and they should keep detailed records of distributions and expenses. Clear instructions in the trust for the timing and manner of distributions help ensure timely support for beneficiaries and preserve the grantor’s intended use of the proceeds.
An ILIT can be structured to support a beneficiary with special needs without disrupting eligibility for public benefits when coordinated with an appropriate trust designed for that purpose. Instead of distributing funds outright, the ILIT can fund a supplemental needs or special needs trust that provides support for quality of life expenses while preserving access to means-tested government benefits. Careful drafting is essential to ensure that distributions are treated as supplemental and do not interfere with benefit eligibility. Coordination with other protective devices, such as guardianship nominations and HIPAA authorizations, creates a comprehensive plan that addresses medical, financial, and long-term care needs. Working with counsel to design distribution standards and trustee powers prevents unintended impacts on public benefits and ensures ongoing care for a beneficiary with special needs.
It is advisable to review ILITs and related estate planning documents every few years or after major life events, such as marriage, divorce, births, deaths, or significant changes in financial circumstances. Legal developments and tax law changes can also affect the effectiveness of an ILIT, so periodic reviews help ensure the trust’s provisions remain aligned with current law and family goals. During reviews, trustee appointments, beneficiary designations, and funding mechanisms should be confirmed to still reflect the grantor’s intentions. Because an ILIT is irrevocable, some provisions cannot be easily changed, but reviews can identify areas where coordination with revocable documents or other planning measures may be necessary. Regular consultations with counsel allow families to adapt their broader estate plan while preserving the intended protections of the ILIT.
Costs for establishing an ILIT vary depending on complexity, the need for coordination with multiple documents, and administrative preferences for trustee selection. Initial legal fees typically cover planning consultations, drafting the trust and related documents, and assistance with policy transfers or purchases. Additional costs may arise for coordinating with insurance agents, preparing Crummey notices, and setting up trustee systems for premium funding and recordkeeping. Pricing structures differ by firm, and many practices offer transparent fee estimates during the planning phase. Ongoing administrative costs depend on who serves as trustee and the level of recordkeeping and oversight required. If a professional fiduciary or corporate trustee is engaged, trusteeship fees may apply. Costs for periodic reviews, amendments to related revocable documents, and tax reporting should also be considered when budgeting for long-term administration. Discussing anticipated expenses upfront helps families plan for both initial implementation and continuing trust maintenance.
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