An Irrevocable Life Insurance Trust (ILIT) is a tailored tool used in estate planning to hold life insurance policies outside of a person’s taxable estate. Creating an ILIT can help provide liquidity for paying final expenses, settling obligations, or leaving funds to loved ones without subjecting the insurance proceeds to estate taxes or probate delays. This page explains how an ILIT functions, what roles parties play, and the types of outcomes clients often seek when incorporating an ILIT into their overall estate plan. Understanding these basics can help you decide whether an ILIT fits your overall financial and legacy goals.
This guide describes the typical benefits and considerations associated with an ILIT and outlines the planning steps we use at the Law Offices of Robert P. Bergman when helping California residents. We serve clients in Garnet, Riverside County and throughout California, and we welcome inquiries by phone at 408-528-2827. The following sections discuss how an ILIT is drafted, funded, and administered, and how it interacts with other estate planning documents such as revocable living trusts, wills, powers of attorney, and health care directives.
An ILIT serves multiple planning purposes that often include removing life insurance proceeds from the grantor’s taxable estate, providing immediate funds for beneficiaries, and offering an orderly method to distribute benefits according to the grantor’s wishes. With proper drafting and funding, the trust can reduce the risk that death benefits are subject to taxable estate value or probate delays. It can also provide creditor protection in certain circumstances and ensure that insurance proceeds are handled by a trustee who distributes funds based on instructions in the trust document. Clients use ILITs to preserve family wealth and to provide financial support at a critical time.
The Law Offices of Robert P. Bergman provide estate planning services to individuals and families across California, including Garnet and surrounding communities in Riverside County. Our practice focuses on preparing documents like revocable living trusts, wills, powers of attorney, advance health care directives, and trust instruments such as ILITs and irrevocable life insurance trust documents. We help clients consider tax implications, beneficiary designations, and administration practicalities. If you prefer to discuss your situation by phone, call 408-528-2827 to arrange a consultation to review options and to explore whether an ILIT aligns with your estate planning priorities.
An ILIT begins when a person, known as the grantor, transfers ownership of a life insurance policy (or arranges for new coverage) into a trust that cannot be revoked by the grantor. The trust becomes the legal owner and beneficiary of the policy, and the trustee manages the trust according to written terms. Because the grantor gives up ownership rights, the proceeds generally fall outside the grantor’s taxable estate, which may reduce estate tax exposure. The trust document also specifies who will receive distributions and under what conditions, allowing the grantor to protect proceeds for children, spouses, or other intended beneficiaries.
Putting a life insurance policy into an ILIT requires careful coordination of ownership, premium funding, and tax notice procedures. Grantors usually make gifts to the trust so the trustee can pay policy premiums, and those gifts may trigger present interest gift tax rules that are commonly addressed with withdrawal notices sometimes called Crummey notices. Timing matters; transfers made shortly before death can be included in the estate if statutory lookback periods apply. A properly funded ILIT requires ongoing administration and clear recordkeeping so that distributions and premium payments reflect the grantor’s intent and comply with tax and trust law.
An Irrevocable Life Insurance Trust is a legal arrangement that owns a life insurance policy for the benefit of designated beneficiaries and is governed by trust terms set by the grantor. The trust holds the policy, collects proceeds at the insured’s death, and distributes funds pursuant to the trust instrument. The irrevocability of the trust means the grantor cannot unilaterally dissolve it or reclaim trust assets, which is central to obtaining tax and probate advantages. Trustees have fiduciary duties to manage the trust prudently, maintain records, and make distributions consistent with the grantor’s instructions and applicable law.
Establishing an ILIT involves drafting a trust agreement, naming a trustee, funding the trust with a policy or initiating new coverage, and setting beneficiary and distribution terms. The trustee must manage policy premiums and record gifts made to the trust to support premium payments. Accurate tax reporting and timely issuance of withdrawal notices, when appropriate, are also important. Trustees may invest trust funds, coordinate with insurance carriers, and distribute proceeds according to the trust’s provisions. Careful planning up front minimizes later disputes and helps ensure that the trust performs as intended when life insurance proceeds are payable.
Familiarizing yourself with common ILIT terms helps you make informed decisions about structure and administration. This glossary covers roles such as grantor, trustee, and beneficiary, and concepts such as premium funding, Crummey withdrawal rights, lookback periods, and how ownership changes affect estate inclusion. Understanding these terms clarifies how an ILIT interacts with other estate planning documents and tax rules. Clear definitions make conversations with counsel and trustees more productive and can reduce costly misunderstandings during trust administration or at the time proceeds are paid.
The grantor is the individual who establishes the trust and transfers assets or policy ownership into it. As trust creator, this person sets the provisions that guide how the trustee manages the trust and how distributions are made to beneficiaries. Because an ILIT is irrevocable, the grantor gives up direct control over the assets once the trust is funded. The grantor’s intent and the timing of transfers are important for tax treatment and for ensuring the trust achieves its goals. Clear instructions in the trust document help trustees carry out the grantor’s wishes after ownership transfers take effect.
The trustee administers the trust in accordance with the trust document and applicable law, making decisions about premium payments, investing trust funds, and distributing proceeds to beneficiaries. Trustees have a duty to act in the best interests of beneficiaries and to keep accurate records of transactions and communications. Selecting a trustee involves considering trust management skills, availability, and impartiality. Trustees may be individuals, family members, banks, or trust companies, and they often work with advisors to ensure premiums are paid, tax filings are completed, and beneficiary distributions follow the grantor’s directions.
Beneficiaries are the people or entities designated to receive trust benefits, including insurance proceeds or income generated by the trust. The trust document defines when and how beneficiaries receive distributions, which can include lump sums, staged distributions, or conditional distributions tied to milestones. Naming beneficiaries clearly and updating designations to reflect life changes like births, marriages, or deaths helps avoid confusion and conflict. Trustees are responsible for following the distribution rules and for communicating with beneficiaries about timing and the nature of benefits provided by the trust.
A Crummey power refers to a limited withdrawal right given to beneficiaries that converts a gift into a present interest so that it qualifies for the annual gift tax exclusion. When contributions are made to an ILIT to pay premiums, the trustee often issues short-term withdrawal notices to beneficiaries giving them the right to withdraw a portion of the gift for a defined period. Beneficiaries typically do not exercise the right, allowing the trustee to use the funds for the policy. Proper documentation of notices and timing helps ensure gifts receive the intended tax treatment.
When choosing how to structure life insurance within an estate plan, options include keeping a policy in the owner’s name, naming beneficiaries directly, using a payable-on-death designation, or transferring a policy into an ILIT. Keeping a policy in the estate can create estate inclusion risks and complicate probate, while naming beneficiaries directly can provide simplicity but less control over distribution timing or use. An ILIT offers structured control and potential tax advantages, but it requires careful drafting, proper funding, and ongoing administration. We discuss relative trade-offs to help clients select the most appropriate approach for their circumstances.
A more limited approach may suit individuals whose total estate value is modest relative to estate tax thresholds and who want beneficiaries to receive life insurance proceeds quickly and without complex administration. In such cases, keeping a policy with beneficiaries named outright or using beneficiary designations on retirement plans can provide a simple, low-cost solution. Those with uncomplicated family dynamics and few anticipated creditor concerns often prefer straightforward arrangements. Legal counsel can evaluate whether the simplicity of leaving a policy outside of a trust aligns with the client’s objectives and whether alternative tools might offer greater benefits at acceptable cost.
A limited approach may be appropriate where a policy is intended as a short-term solution or where ownership changes are temporary while longer-term planning is developed. For example, if a policy will be replaced or surrendered within a short time frame, transferring it into a complex trust may be unnecessary. Similarly, when urgent coverage is needed immediately and the client plans to restructure ownership later, a simpler ownership strategy can provide flexibility without committing to an irrevocable arrangement. Advisors can assist in timing transfers to avoid unintended tax or estate inclusion consequences.
A comprehensive ILIT approach becomes important for individuals with estates that may face tax exposure or who want firm assurances that sufficient liquidity will be available to cover estate obligations, taxes, or business succession needs. By placing policies in an ILIT, the death proceeds are typically excluded from the owner’s taxable estate when transfers occur outside applicable lookback periods. This structure can prevent forced asset sales and provide clear instructions for distribution. Thorough planning ensures that the policy funding, trustee selection, and trust provisions align with long-term financial and family goals.
When beneficiaries include minors, individuals with special needs, or family members who need protection from creditors or poor financial decisions, a comprehensive trust arrangement allows the grantor to control distribution timing and conditions. An ILIT can be drafted to provide staged distributions, to fund supplemental needs without affecting public benefits, or to protect proceeds from judgments and creditors under certain circumstances. The trust’s provisions can preserve wealth over multiple generations and address unique concerns such as business succession, charitable giving, or special needs planning.
A carefully structured ILIT can reduce estate inclusion of life insurance proceeds, provide immediate liquidity for estate obligations, and enable the grantor to design distribution rules that match family needs. The trust framework supports orderly administration at a difficult time and can reduce the risk of disputes over proceeds. When combined with other estate planning documents such as a revocable living trust, durable powers of attorney, and health care directives, an ILIT helps create a coordinated plan that addresses financial, legal, and personal considerations. Planning in advance reduces uncertainty and helps preserve intended legacy outcomes.
In addition to tax and liquidity benefits, an ILIT can protect proceeds from being swept into probate and provide creditor protection in many circumstances. The trust structure can be used to support long-term planning goals including family wealth transfer, charitable intent, and business continuity. Trustees can be given clear authority to manage funds prudently and to allocate resources in a manner that reflects the grantor’s priorities. Proper administration and documentation are essential to realize these benefits and to reduce the likelihood of unintended tax or legal consequences.
One of the primary reasons to use an ILIT is to keep life insurance proceeds out of the grantor’s taxable estate, which can reduce estate tax liability when an estate’s value approaches or exceeds applicable thresholds. The proceeds can provide immediate funds to pay taxes, debts, and final expenses so that other estate assets do not have to be sold under pressure. This financial stability benefits beneficiaries by preserving family assets and preventing forced liquidation of family businesses or property. Coordinating the ILIT with overall estate planning helps maximize the intended protective effects.
An ILIT allows the grantor to tailor distribution provisions so that proceeds are used responsibly and in ways that match family priorities, such as education, healthcare, or housing. The trust vehicle can also include safeguards for beneficiaries who may be vulnerable to creditors or who require structured support over time. By appointing a trustee and setting clear distribution standards, the grantor creates a framework that guides the management of funds after death. This control can provide peace of mind that funds will be handled in a manner consistent with the grantor’s intentions.
Starting planning well in advance gives you time to place a policy into an ILIT without triggering lookback inclusion rules and to align premium funding with gifting strategies. Early planning allows careful selection of trustees and beneficiaries, ensures that funding arrangements are documented, and reduces the risk of last-minute transfers that could be included in the estate. Consider how the ILIT interacts with other estate planning documents and financial accounts and review timing with counsel to avoid unintended tax or inclusion consequences that can arise from transfers made too close to the date of death.
Periodic reviews ensure the ILIT remains aligned with life changes such as births, marriages, divorces, changes in health, or shifts in financial circumstances. Revisit beneficiary designations, premium funding capabilities, and trustee suitability on a regular basis. Changes in tax law or family dynamics may require updates to related documents like wills, living trusts, or powers of attorney. Regular planning conversations help anticipate issues and allow for thoughtful adjustments to the estate plan rather than reactive last-minute changes that can introduce complications.
People choose ILITs for several reasons, including reducing potential estate tax exposure, providing immediate liquidity to pay taxes or debts, and protecting insurance proceeds from probate. An ILIT can also support long-term financial objectives such as funding education, providing for a surviving spouse, or preserving family businesses across generations. For those with significant insurance policies or complex family dynamics, an ILIT offers a structured way to control distribution and to address creditor concerns. Evaluating whether the benefits align with your priorities is an important part of the planning process.
An ILIT is also helpful when there is a desire to manage how and when beneficiaries receive funds, particularly when beneficiaries may need staged distributions or protection from outside claims. The trust’s terms can address special circumstances such as supporting a beneficiary with special needs without interfering with public benefits, or providing oversight for funds left to younger family members. Working through these considerations in advance reduces the likelihood of conflict and helps ensure that the resources you leave are used as you intended over time.
Situations that commonly prompt consideration of an ILIT include significant life insurance holdings, potential estate tax exposure, complex family arrangements, business succession planning, and the desire to create controlled distributions for heirs. Individuals with blended families, beneficiaries with special needs, or those seeking to protect assets from creditors may also find an ILIT useful. Additionally, clients who want to ensure immediate liquidity for taxes and expenses at death often rely on life insurance held in a trust to preserve other estate assets from forced sale or division during probate.
When life insurance coverage is substantial relative to other estate assets, placing the policy in an ILIT can prevent the death benefit from increasing the taxable estate and creating estate tax complications. An ILIT provides a clear mechanism for holding the policy outside the grantor’s estate, and the trust terms can allocate proceeds to cover taxes or support heirs. Careful attention to timing and funding is required to ensure the transfer is effective for tax purposes, but for many families this approach preserves wealth and avoids pressure to liquidate other estate assets at an inopportune time.
Families that want to protect proceeds from creditors, divorcing spouses, or poor financial decisions often use an ILIT to place distribution rules that safeguard the intended uses of funds. The trust structure enables the grantor to outline conditions for distributions, set ages or milestones for releases, and provide safeguards for beneficiaries who may have special financial needs. By appointing a trustee with clear instructions, the trust can ensure that proceeds are managed prudently and disbursed in a way that advances the grantor’s objectives while providing long-term support and oversight.
An ILIT is often used as part of business succession planning to provide liquidity for taxes, buyouts, or continuity costs that arise upon the owner’s death. Insurance proceeds held in the trust can fund buy-sell agreements or provide capital to keep a business operating while ownership is transferred. This liquidity helps prevent the need to dissolve or sell business assets under duress. Planning the ILIT alongside other business agreements ensures that funds are available when needed and that the business transition aligns with the owner’s estate plan.
We provide guidance to Garnet residents and others in Riverside County who are considering an ILIT as part of a broader estate planning strategy. Our team helps you evaluate whether an ILIT meets your goals, reviews policy ownership options, coordinates premium funding, and prepares trust documents tailored to your circumstances. Scheduling a conversation helps clarify your objectives and ensures you understand timelines, tax considerations, and trustee responsibilities. To discuss your situation and next steps, contact the Law Offices of Robert P. Bergman at 408-528-2827.
Choosing counsel experienced in estate planning and trust administration helps ensure that an ILIT is drafted and funded to achieve intended results. We assist clients with document drafting, funding strategies, trustee selection, and coordination with insurance carriers and financial advisors. Our approach emphasizes clarity in trust provisions and practical administration plans so that beneficiaries receive benefits in the manner the grantor intended. We also advise on how the ILIT interacts with other estate planning documents to create a cohesive plan.
During the planning process we review the timing of transfers, any applicable lookback rules, and the documentation needed to support tax treatment of gifts and premium payments. We can prepare Crummey notices when appropriate, maintain records of gifts to the trust, and advise trustees about their duties and reporting obligations. Proactive planning reduces the risk of unintended estate inclusion and clarifies responsibilities so administration at the time of death proceeds smoothly and without undue delay.
We aim to provide practical guidance tailored to your family circumstances and financial objectives. Whether you are creating an ILIT for the first time, reviewing a plan established years ago, or coordinating an ILIT with business succession arrangements, we help you consider alternatives and document a plan that reflects your priorities. Call our office at 408-528-2827 to schedule a consultation and learn more about how an ILIT could be integrated into your estate plan in Garnet and Riverside County.
Our process begins with a thorough review of your existing estate plan, insurance policies, and financial objectives. We discuss preferred beneficiaries, trustee candidates, and funding strategies for premiums. After identifying goals and constraints, we draft trust documents tailored to your needs, prepare any related notices, and coordinate the transfer or issuance of the insurance policy to the trust. We also advise on tax and administrative implications and provide a clear roadmap for trustees and family members to follow after the trust is funded. Ongoing reviews keep the plan current.
The initial stage involves collecting information about your existing policies, beneficiaries, financial accounts, and family goals. We ask about prior estate documents and any business interests that might be affected by trust planning. This review helps identify whether an ILIT is appropriate and whether policy transfers should occur now or at a later date to achieve desired tax treatment. We also outline trustee responsibilities and discuss how premium funding will be handled so that the trust can operate effectively once established.
We examine who currently owns your life insurance policies and how beneficiaries are designated to determine whether ownership changes are advisable. If a policy remains in the owner’s name, it may be included in the estate unless transferred sufficiently in advance. We evaluate the paperwork required by the insurance carrier to change ownership and beneficiary designations and identify any timing considerations related to lookback rules. This assessment ensures transfers are done in a way that supports your estate planning goals and avoids surprises later.
Selecting an appropriate trustee and drafting clear distribution provisions are essential early steps. We discuss the qualities and availability of potential trustees and recommend provisions that address distributions, successor trustees, and trustee powers to manage premiums and investments. The trust document is drafted to reflect your intentions, including any staged distributions, special needs considerations, or conditions on distributions. Clear drafting reduces the likelihood of disagreements and helps trustees administer the trust according to your wishes.
Funding the ILIT typically involves transferring ownership of an existing policy to the trust or arranging for the trust to own a new policy. We coordinate with insurance carriers to execute ownership and beneficiary changes, prepare necessary trust certifications, and set up mechanisms for premium payments. Where gifts are required to fund premiums, we advise on annual gift exclusion strategies and the use of withdrawal notices when appropriate. Proper funding and documentation protect the intended tax and probate advantages of the trust.
When transferring a policy, the trust must be properly identified with the carrier and the paperwork must be completed to reflect the trust as owner and beneficiary. We assist in preparing and submitting the necessary forms, ensuring the carrier has required trust documentation, and confirming that ownership change does not lapse coverage. We also help track effective dates so that any applicable lookback rules are observed and that the trustee has the authority and information needed to manage the policy going forward.
Premium funding often requires annual gifts from the grantor to the ILIT so the trustee can pay insurance costs. We design a gift schedule and prepare documentation such as Crummey notices when needed to qualify gifts for the annual exclusion. Maintaining records of gifts and trustee actions supports the intended tax treatment and makes administration transparent. We also advise on contingency funding methods for unexpected premium increases or temporary liquidity gaps so the policy remains in force for its intended purpose.
Once the ILIT is funded, ongoing administration includes timely premium payments, recordkeeping, beneficiary communications, and periodic reviews to ensure the trust continues to match your objectives. Trustees must file any required tax returns, maintain accurate records, and follow distribution instructions. We remain available to advise trustees and beneficiaries, review requests for distributions, and recommend adjustments to associated estate planning documents as circumstances change, helping ensure the trust functions smoothly over time and that your legacy goals are maintained.
Trustees are responsible for maintaining complete records of gifts, premium payments, notices sent to beneficiaries, and investment actions. Good records help demonstrate that the trust has been operated according to its terms and support its tax treatment. Trustees should also remain aware of any required filings and respond to creditor claims or beneficiary inquiries. We can assist trustees by providing guidance on administration matters, drafting distribution agreements, and ensuring compliance with trust terms and applicable law to avoid disputes and facilitate efficient distribution when proceeds are payable.
Life changes and legal developments can affect an ILIT’s effectiveness, so periodic reviews are essential. We recommend reviewing the trust and related documents when there are significant family changes, shifts in financial circumstances, or changes in the law. These reviews ensure beneficiary designations remain current, trustee choices remain appropriate, and funding strategies continue to work. Coordinating the ILIT with the client’s revocable trust, wills, powers of attorney, and business agreements preserves a unified plan that reflects current intentions and practical needs.
An Irrevocable Life Insurance Trust is a trust that owns and is the beneficiary of a life insurance policy. The grantor funds the trust or transfers an existing policy so the trust becomes the policy owner and beneficiary. Because the trust is irrevocable, the grantor gives up ownership rights, and the death benefit is managed and distributed according to the trust terms rather than passing directly through probate. This setup allows for more control over distribution timing and can reduce estate inclusion in many situations. The trustee administers the policy, pays premiums from trust funds, and distributes proceeds according to the trust instrument. Creating an ILIT usually involves drafting the trust agreement, transferring ownership or causing the trust to purchase a policy, and setting up a funding plan for premiums. Documentation such as certificates of trust or trust excerpts may be provided to the insurance carrier to verify the trust’s authority. It is important to consider timing, because transfers made shortly before death may still be included in the grantor’s estate under statutory lookback rules. Proper planning and administration reduce the risk of unintended tax consequences and help ensure the trust functions as intended.
Placing a life insurance policy into an ILIT can remove the policy’s death benefit from your taxable estate, but timing and the nature of the transfer matter. If the policy is transferred into the trust and the grantor survives the applicable lookback period, the proceeds will generally be outside the taxable estate. Transfers made within the statutory lookback window may be included in the estate, so careful timing and planning are essential. The trust’s irrevocable nature helps establish that the grantor no longer owns the policy, which supports the goal of estate exclusion when managed correctly. Other considerations include ensuring that the trust is properly funded and that premium gifts are documented so they qualify for the annual gift tax exclusion when appropriate. Coordination with beneficiary designations, wills, and other estate planning documents is also necessary to prevent conflicting instructions. Professional guidance can help ensure transfers are executed in a way that achieves intended estate planning outcomes while observing tax and trust administration requirements.
Once a policy is owned by an ILIT, the trustee is responsible for making premium payments on behalf of the trust to keep the policy in force. Typically, the grantor makes annual gifts to the trust that allow the trustee to pay premiums. These gifts are often structured to qualify for the annual gift tax exclusion, which may require issuing short-term withdrawal notices to beneficiaries so that contributions are treated as present interest gifts. Proper documentation of gifts and notices is essential for maintaining the desired tax treatment and ensuring ongoing premium payments. The trustee must maintain records of gifts, premium payments, and any beneficiary notices. If funding is interrupted or premiums cannot be paid, the policy could lapse, undermining the trust’s purpose. For clients concerned about funding reliability, there are alternatives such as adjusting coverage levels, setting aside additional trust assets for premiums, or exploring payoff options. Discussing funding strategies during the planning phase helps prevent administration problems after the trust is established.
Choosing a trustee for an ILIT is an important decision that balances trustworthiness, financial acumen, and availability. Many grantors select a trusted family member, a close advisor, or a professional fiduciary. A trustee must be willing to manage premium payments, maintain accurate records, communicate with beneficiaries, and act impartially in accordance with the trust document. When selecting a trustee, consider whether the person or institution can handle administrative responsibilities and potential complexities that could arise during the life of the trust. Some clients prefer to name successor trustees and include provisions for professional assistance with investment, tax, or insurance matters. If the trustee is a family member, it may still be appropriate to engage outside advisors for investment or tax filings. The trust document can provide the trustee with authority to hire professionals and to take actions needed to administer the trust efficiently and in line with the grantor’s intent.
Crummey notices are short-term notices sent to beneficiaries informing them of their limited right to withdraw a gift made to the trust. These notices convert the gift into a present interest so that it qualifies for the annual gift tax exclusion, which reduces potential gift tax consequences. Typically the beneficiary has a brief window, often thirty to sixty days, to exercise the withdrawal right, but most beneficiaries do not exercise the right and permit the trustee to use the funds for premium payments. Proper issuance and documentation of these notices are important to support the exclusion. Crummey provisions must be drafted carefully to reflect actual withdrawal opportunities and to conform to tax rules. Trustees should keep records of notices sent and any withdrawals made. Including clear procedures in the trust document for issuing notices and handling withdrawal requests helps ensure the gifting strategy functions as intended and maintains alignment with gifting and tax objectives.
An ILIT can provide an additional layer of protection for insurance proceeds by placing them in a trust rather than having them pass directly to beneficiaries or into the estate. In many circumstances, assets held in a properly drafted and administered irrevocable trust are less accessible to creditors or to claims arising from divorce than assets owned outright by a beneficiary. However, the extent of protection depends on the applicable law and on how the trust is structured. Consultation during the planning stage helps align protective features with anticipated risks and legal requirements. While an ILIT can be a useful protective measure, it should be considered alongside other asset protection strategies and family law considerations. Timing of transfers, the nature of creditors’ claims, and the specific terms of the trust all affect the degree of protection. Professional guidance helps ensure the trust is structured to provide appropriate safeguards without creating unintended tax or legal consequences.
An ILIT is one component of a coordinated estate plan and should be aligned with your revocable living trust, will, powers of attorney, and health care directives. While an ILIT holds the life insurance policy and controls its proceeds, a revocable living trust or will typically governs other assets and distributions. It is important that beneficiary designations on accounts and policies, the terms of revocable trusts, and any provisions in wills all work together to reflect consistent intentions and to avoid conflicting directions that can lead to disputes or unintended results. We review how an ILIT fits into the larger estate plan, update related documents where needed, and recommend changes to beneficiary designations to avoid inconsistencies. Coordination reduces the likelihood that assets will be subject to probate or that beneficiaries will receive conflicting instructions. Periodic reviews help ensure that the overall plan remains coherent as life circumstances change.
If a policy is transferred into an ILIT shortly before the grantor’s death, statutory lookback rules may result in inclusion of the policy proceeds in the grantor’s taxable estate. Federal rules include a three-year lookback period for certain transfers involving life insurance, so transfers made within that period can undermine the intended estate tax protection. Because of this, timing is an important consideration when funding an ILIT. Planning ahead and completing transfers early reduces the risk that the proceeds will be included in the estate and helps preserve the advantages of the trust structure. If you are concerned about timing, we evaluate whether alternative arrangements can meet your objectives or whether delaying a transfer until it will be effective for tax purposes is advisable. Our goal is to design a plan that achieves intended outcomes while minimizing the risk of inadvertent estate inclusion or other adverse effects.
Yes, ILITs require ongoing administration, including timely premium payments, recordkeeping for gifts and notices, and communication with beneficiaries. Trustees must maintain accurate records of contributions, premium payments, and any withdrawal requests. They should also ensure the insurance carrier has current documentation and that policy loans or other policy changes are managed in accordance with the trust’s terms. Regular oversight helps prevent policy lapse and preserves the trust’s intended benefits for beneficiaries. Periodic reviews are recommended to confirm that funding strategies remain appropriate and to update trustee or beneficiary designations as circumstances change. Trustees may need assistance with tax filings or with distributions when proceeds become payable. Working with qualified advisors and keeping the trust documents and records current helps ensure smooth administration over time.
To start creating an ILIT in Garnet, contact our office to arrange an initial consultation to discuss your goals, existing policies, family dynamics, and any related business planning needs. We will review your current estate planning documents, insurance policies, and financial accounts to determine whether an ILIT fits your objectives and to identify any timing or funding concerns. During this initial stage we develop a plan for drafting the trust, arranging policy transfers if needed, and documenting premium funding strategies. After the planning phase, we draft the trust instrument, prepare any necessary transfer paperwork for the insurance company, and advise on documentation such as Crummey notices. We also help you select a trustee and outline steps for ongoing administration. Call the Law Offices of Robert P. Bergman at 408-528-2827 to arrange a consultation and begin the planning process tailored to your circumstances in Riverside County and beyond.
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