An irrevocable life insurance trust, commonly called an ILIT, is a legal tool used in estate planning to hold a life insurance policy outside of your probate estate. Establishing an ILIT can help provide immediate liquidity to pay estate obligations, provide for beneficiaries without creating additional estate tax exposure, and preserve insurance proceeds for intended recipients. This page explains how ILITs work in California, what roles trustees and grantors play, and the steps needed to form, fund, and administer a trust tailored for life insurance ownership and payout distribution in Borrego Springs and San Diego County.
Many families and business owners consider an ILIT when they want life insurance proceeds to be managed with specific instructions rather than passing through probate. Creating an ILIT involves drafting trust documents, transferring ownership of a policy into the trust, and following formal gift procedures when funding premiums. The Law Offices of Robert P. Bergman assists clients with each stage, from planning and drafting to funding and administration. We provide clear guidance on timing, trustee selection, and coordination with financial institutions and insurance carriers to make sure the trust accomplishes your objectives.
An ILIT can be a valuable component of an estate plan because it can remove life insurance proceeds from an estate for tax purposes when properly implemented, provide immediate funds for taxes, debts, and administration costs, and offer structured distributions for beneficiaries. The trust can also protect proceeds from probate delay and potential creditor claims depending on circumstances. By outlining how proceeds will be used and who will manage distributions, an ILIT can reduce family conflict and ensure that financial resources are available when needed. Proper setup and ongoing compliance are important to achieve the intended benefits.
The Law Offices of Robert P. Bergman provides estate planning services to clients throughout California, including Borrego Springs and San Diego County. Our approach emphasizes clear communication, careful drafting, and practical solutions tailored to each client’s circumstances. We work with families, trustees, and trustees’ advisors to prepare trust documents that reflect client priorities and comply with current law. From advising on donor and trustee roles to coordinating policy ownership changes and premium funding, we help clients complete the legal and administrative steps necessary to put an ILIT into effect and to maintain it over time.
An ILIT is formed when a person creates a trust and transfers ownership of one or more life insurance policies into that trust. Once the policy is owned by the trust, premium payments are typically made by the grantor as gifts to the trust, and beneficiaries receive policy proceeds according to the trust terms after the insured’s death. The trust must be drafted to reflect clear distribution instructions, identify a trustee to manage the trust, and address any administrative tasks such as filing notices or coordinating with the insurance carrier. Timing matters as changes made near the time of death may not achieve intended tax results.
People use ILITs for a variety of planning reasons, including reducing potential estate tax exposure, ensuring funds for estate settlement costs, and preserving insurance benefits for heirs under controlled distribution rules. An ILIT can work alongside revocable trusts, wills, powers of attorney, and other estate planning documents to form a comprehensive plan. Careful attention to annual gift procedures, trustee powers, and the method of funding premiums is essential to avoid unanticipated tax treatment or administrative complications that can undermine the trust’s objectives.
An ILIT is an irrevocable trust created specifically to own life insurance policies. The grantor transfers existing policies or causes new policies to be issued in the name of the trust so that the death benefit is paid to the trust rather than to the grantor’s estate or direct beneficiaries. The trustee then manages proceeds in accordance with the trust document, which can include instructions for paying debts, making distributions for education or maintenance, or creating ongoing support for heirs. Because ownership is removed from the insured’s estate, an ILIT can change the estate tax and probate picture when set up in advance of the insured’s death.
Key components of an ILIT include the trust document, the named trustee, the trust beneficiaries, and the life insurance policy owned by the trust. Typical processes involve drafting and signing the trust agreement, transferring or issuing the policy in the trust’s name, establishing procedures for funding premiums, and providing annual notices to beneficiaries when gifts are made for premium payments. Trustees also must handle interactions with the insurer and maintain records. Proper sequencing and documentation are important to achieve desired tax and estate planning results and to avoid unintended inclusion of proceeds in the insured’s estate.
Understanding common terms helps when discussing ILIT planning. The glossary below explains roles and concepts you will encounter, such as grantor, trustee, beneficiary, Crummey notices, and premium gifting. These terms govern how the trust is formed, how gifts are treated for tax purposes, and how proceeds are distributed. Becoming familiar with these concepts makes it easier to work with your attorney and financial advisors, to evaluate different trust provisions, and to ensure administrative steps are followed so the ILIT functions as intended throughout the life of the policy and after the insured’s death.
The grantor, sometimes called the trustmaker, is the person who creates the ILIT and transfers the life insurance policy or funds into the trust. The grantor typically pays premiums by making gifts to the trust so that the trustee can maintain the policy. The grantor must understand the irrevocable nature of the trust and the timing rules that affect tax treatment. Because the trust is irrevocable, the grantor generally gives up the right to change the trust terms unilaterally, so careful planning and clear drafting at creation are important to match the grantor’s long-term objectives for the policy proceeds and beneficiaries.
The trustee is the individual or entity appointed to manage the ILIT, hold the policy, receive premiums or gifts, and distribute proceeds according to the trust document. The trustee has fiduciary duties to act in the best interests of the beneficiaries, maintain accurate records, coordinate with the insurance company, and follow trust instructions. Trustee selection should consider availability, administrative capacity, and familiarity with trust administration tasks. There are practical decisions trustees will face, such as whether to cash out or maintain a policy, how to invest proceeds, and when to make distributions for beneficiaries’ needs.
Beneficiaries are the people or entities designated to receive distributions from the ILIT when the policy pays out or when the trust makes distributions during its term. Beneficiary provisions can be drafted to provide lump sum payments, staged distributions over time, or payments for specific purposes like education or health care. Clear beneficiary designations in the trust document help avoid disputes and unintended consequences. The trust can include successor beneficiaries, conditions for distributions, and protections for minors or vulnerable beneficiaries, allowing the grantor to shape how proceeds support beneficiaries over the long term.
A Crummey notice refers to a written notification given to beneficiaries when the grantor makes a gift to the ILIT that qualifies for the annual gift tax exclusion. The notice informs beneficiaries of their temporary right to withdraw the gift, even though in practice they often do not exercise that right. Providing Crummey notices in a timely and documented manner can help ensure gifts used to pay policy premiums are treated as present interest gifts and qualify for the annual exclusion. Properly managing these notices is a common administrative requirement of ILIT funding.
There are several ways to include life insurance in an estate plan, including owning a policy personally, naming beneficiaries directly, designating a revocable trust as beneficiary, or placing the policy in an ILIT. Each option has trade-offs for tax results, creditor exposure, and control over distributions. Keeping a policy in your estate can create liquidity but may increase estate tax exposure. Naming beneficiaries directly is simple but often provides less control over how proceeds are used. An ILIT can offer tax and probate benefits but requires adherence to funding formalities and trustee administration.
A limited approach may be appropriate when estate values are low relative to exemption amounts or when life insurance is intended only to cover short-term needs like final expenses. If the policy face amount is modest and estate tax exposure is unlikely, the administrative burden of creating an ILIT may not be justified. In those situations, keeping a policy in a personal name and relying on beneficiary designations can be a practical alternative. It remains important to review beneficiaries and coordinate the policy with the rest of the estate plan to avoid unintended outcomes.
When the insurance proceeds are small or when family members have informal arrangements and clear expectations about distributions, the complexity of an ILIT may outweigh its benefits. Simple beneficiary designations or use of an existing revocable trust may be easier to manage and less costly to maintain. That said, even modest policies should be reviewed periodically to confirm that the chosen approach still meets family needs, beneficiary circumstances, and tax law changes that can affect estate planning decisions.
A comprehensive approach is often advisable when estate values could trigger estate tax concerns, when a life insurance payout is intended to pay taxes or provide liquidity for a business, or when assets and family situations are complex. In these cases, carefully structured ILIT provisions, coordinated funding, and trustee instructions can preserve policy benefits and help ensure funds are available when needed. Comprehensive planning also takes into account successor planning, creditor protection, and the potential interaction between federal and state tax rules.
If beneficiaries include minors, adults with limited financial management skills, or individuals with special needs, a comprehensive ILIT can set distribution parameters, delay access to principal, or create protective provisions that preserve funds over time. Customized trust provisions can direct how benefits are used for education, health care, or ongoing support, while protecting assets from creditors or divorce. Comprehensive drafting allows the grantor to tailor distributions to family needs and set trustee powers that guide investment, distribution, and reporting practices.
A comprehensive ILIT approach integrates careful drafting, trustee selection, and funding mechanics to achieve tax efficiency, control over distributions, and reduced probate interference. By addressing Crummey notice procedures, gift tax considerations, and trustee powers at the outset, a comprehensive plan reduces the risk of unintended tax consequences or administrative disputes after the insured’s death. This approach also helps ensure continuity of management and clear instructions for how proceeds should be allocated to pay debts, support beneficiaries, or preserve family businesses or properties.
Comprehensive planning also incorporates periodic review to adapt to life changes such as births, deaths, marital changes, or changes in asset mix and tax law. By coordinating the ILIT with retirement accounts, revocable trusts, and business succession plans, you can align liquidity needs with long-term wealth transfer goals. Clear trustee duties and successor arrangements reduce the likelihood of disputes, ensure timely claims against insurers are filed, and help trustees act confidently when administering proceeds for beneficiaries’ benefit.
One of the primary benefits of a comprehensive ILIT is the potential to keep life insurance proceeds outside the taxable estate, which can provide immediate liquidity to pay taxes, debts, and administrative expenses. When funds are available to settle obligations promptly, families avoid the need to sell assets at an inopportune time. A well-drafted trust also directs how liquidity is used, whether to preserve a family business, pay off mortgages, or provide income for dependents. Proper timing and documentation are essential to realize these advantages.
A comprehensive ILIT allows the grantor to provide structured distributions for beneficiaries to meet long-term needs while guarding against rapid depletion of the proceeds. Trust provisions can require trustees to make payments for specific purposes, to withhold distributions until beneficiaries reach certain ages, or to use funds conservatively for health, education, maintenance, and support. This protection can be especially important for minors, spendthrift beneficiaries, or in families where creditors or divorce pose potential risks to inheritances.
Begin ILIT planning well before any anticipated need so ownership transfers and gifting rules are effective and documented. Early planning gives time to arrange ownership transfers, establish premium funding, and notify beneficiaries as needed without rushed last-minute steps that can jeopardize tax results. Coordinate with family members and beneficiaries about the trust purpose and distribution objectives so expectations are clear. Communicate with financial advisors and insurers to ensure beneficiary designations and policy ownership align with the trust structure and broader estate planning goals.
Select a trustee who is willing and able to handle communications with insurance carriers, maintain records, send required notices, and follow the trust’s distribution terms. The trustee should understand timing requirements for premium payments and be prepared to make timely claims and manage proceeds after a policy payout. If an individual trustee may lack the bandwidth, consider naming a professional trustee or co-trustee arrangement to assist with administration. Clear trustee powers and successor provisions in the trust document make ongoing administration smoother.
An ILIT may be appropriate if you want life insurance proceeds managed outside of probate, if you need liquidity to settle estate obligations, or if you want to control how and when funds are paid to heirs. People with closely held businesses, significant real estate holdings, or family members who need protected distributions often choose an ILIT to address those needs. The trust can also serve as a vehicle to preserve insurance proceeds for future generations and to coordinate payments to meet specific goals such as paying taxes, funding a buy-sell agreement, or supporting dependents.
Consider an ILIT when your estate plan requires both liquidity and discretion. If immediate access to funds is important for settling debts or preserving a business, an ILIT can ensure cash is available promptly. If you want to provide for beneficiaries while limiting exposure to creditors, or when beneficiaries need managed support due to age or financial capacity, the trust offers structured distribution options. Discussing these objectives early helps match trust provisions to needs and ensures funding and notices are handled properly to achieve intended results.
Typical situations prompting ILIT planning include families with sizable estates seeking tax-efficient transfer strategies, owners of closely held businesses needing liquidity for succession, and individuals who wish to protect proceeds for minors or vulnerable beneficiaries. ILITs are also used when the client wants to prevent life insurance proceeds from being subject to probate or potential estate creditor claims. In each case, the ILIT is tailored to the client’s goals, whether that means providing income, staged distributions, or pooled funds for specific purposes.
When estate values approach levels where taxes could be a concern, an ILIT can be designed to remove life insurance proceeds from the estate and provide funds to cover tax liabilities. This allows heirs to receive property without undue pressure to liquidate assets quickly. Planning ahead is important to ensure ownership transfers and funding occur with enough lead time to meet tax rules. Working with legal and tax counsel helps align the ILIT with the broader estate plan so funds are available for tax obligations and settlement costs when needed.
If beneficiaries include children, grandchildren, or adults who may need ongoing financial support, an ILIT can provide structured distributions to address those needs while protecting the funds from mismanagement or outside claims. Trust terms can require payments for education, health care, or maintenance and set age milestones for larger distributions. Trustees can be instructed to invest conservatively and report to beneficiaries, creating a balance between providing support and preserving capital for long-term benefit of the intended recipients.
Business owners often use ILIT proceeds to fund buy-sell agreements or to provide liquidity that allows a surviving partner or family member to maintain business continuity. Structured trust distributions can supply the cash needed to purchase interest from heirs or to settle obligations without forcing a sale. When business succession is a priority, coordinating an ILIT with operating agreements and buy-sell arrangements provides a predictable funding source and helps protect the business from fragmentation or distress at a key transition point.
The Law Offices of Robert P. Bergman serves clients in Borrego Springs and throughout San Diego County, offering estate planning services by appointment and by remote consultation as needed. We help clients review existing policies, draft trust documents, coordinate funding, and guide trustees through administration steps. Our office can be reached at 408-528-2827 to schedule a consultation to discuss ILIT options and how they fit into a broader estate plan. We strive to provide practical guidance and clear next steps tailored to local circumstances and state law.
Clients choose the Law Offices of Robert P. Bergman because we focus on delivering practical, client-centered estate planning services with clear communication and careful drafting. We take time to understand family dynamics, financial objectives, and timing concerns to create trust documents that reflect client priorities. Our process is designed to minimize surprises, to identify administrative requirements up front, and to coordinate with insurance carriers, financial advisors, and trustees to ensure a smooth transition when a policy pays out.
We emphasize straightforward advice and transparent fee discussions so clients can make informed decisions about whether an ILIT is appropriate for their situation. Our team explains funding mechanics, gift tax considerations, and trustee responsibilities in plain language and provides checklists and templates to support proper administration. We also review how an ILIT integrates with wills, revocable trusts, powers of attorney, and healthcare directives to create a cohesive plan that addresses both immediate and long-term needs for families and business owners.
Our firm aims to make the process manageable by guiding clients through each step, from initial review to funding and trustee setup. We help prepare required notices and documentation, coordinate with carriers for ownership changes, and advise trustees on their duties when the policy pays out. Accessibility and responsiveness are priorities; clients can reach us by phone at 408-528-2827 for scheduling and follow-up questions. We also assist with periodic plan reviews to ensure the ILIT continues to align with evolving family circumstances and legal developments.
Our legal process for ILIT matters begins with an initial consultation to identify objectives and review existing policies and estate documents. We then prepare a draft trust tailored to the client’s goals, coordinate ownership transfers or new policy issuances, and outline funding steps and notice procedures. After funding, we provide trustees with guidance on administration and recordkeeping. We also schedule periodic reviews to confirm the ILIT remains effective as laws and family circumstances change, offering continuity and peace of mind for clients and beneficiaries.
In the initial meeting we gather essential information about current life insurance policies, asset values, beneficiary designations, and family goals. This review identifies whether an ILIT is appropriate and determines the structure and provisions that best address client objectives. We discuss trustee options, funding strategies, and timing considerations, including the potential impact on gift and estate tax treatment. Clients leave with a clear action plan and an explanation of next steps for drafting and funding the trust.
We examine policy ownership, beneficiary designations, premium schedules, and any existing trust or estate planning documents to determine how an ILIT will fit into the overall plan. Identifying discrepancies or potential conflicts early helps prevent administrative headaches later. We also evaluate whether a transfer of ownership or new policy issuance is preferable, and we assess any timing issues that could affect tax treatment. Clear coordination between insurer, client, and counsel is essential to implement the chosen approach smoothly.
During the initial planning phase we work with clients to articulate distribution goals, timing for beneficiary access, and funding methods for premiums. This discussion informs trustee powers and any conditions for distributions, such as age thresholds or specific purposes like education or care. We also map out how gifts will be documented to qualify for the annual exclusion, and we explain the administrative steps beneficiaries will receive if Crummey notices are required. This planning helps ensure the trust structure meets family needs.
After confirming the plan design, we draft trust documents that set trustee powers, beneficiary instructions, and administrative procedures. We coordinate with the insurance company to transfer ownership or to issue a new policy in the trust name. The funding phase typically involves the grantor making gifts to the trust to cover premium payments, applying annual exclusions where possible, and providing Crummey notices to beneficiaries when required. Documentation of each step is important to support the intended tax and estate results.
Trust documents specify how the trustee should manage the policy, handle premium payments, invest proceeds, and make distributions. Clear trustee instructions reduce ambiguity and help with smooth administration after the policy pays out. The drafting process also addresses successor trustee appointment, reporting requirements, and provisions for unusual circumstances. By tailoring these instructions to client goals, the trust establishes governance that aligns with family priorities and provides practical guidance for fiduciaries when managing trust assets.
Coordinating the transfer of policy ownership and the mechanism for premium payment is an administrative focus during funding. We work with clients and carriers to ensure ownership changes are properly recorded, beneficiaries are aligned with trust terms, and the trustee can accept payments or manage premium obligations. Establishing reliable funding mechanisms and documenting gifts, including any required beneficiary notices, helps prevent problems and supports the intended tax treatment for premium gifts made to the trust.
Once the trust is in place and funded, ongoing administration involves monitoring premium payments, maintaining records, issuing notices, and preparing for eventual policy claims. After a policy payout, the trustee follows the trust provisions to make distributions and to use proceeds for intended purposes, such as paying taxes, supporting beneficiaries, or funding business succession. Periodic reviews ensure the trust continues to reflect changes in family circumstances, asset values, and applicable laws, and help determine whether adjustments to related estate planning documents are necessary.
When a life insurance policy pays out to the ILIT, the trustee must file any necessary claims, obtain the proceeds, and carry out distribution instructions. The trustee also manages investments, pays debts or taxes required by the trust, and communicates with beneficiaries about the trust’s actions. Proper accounting and documentation are essential to provide transparency and to demonstrate that the trustee performed their duties according to the trust terms. The trustee may also coordinate with accountants or tax advisors to address any reporting obligations.
Although the trust is irrevocable, reviewing the overall estate plan periodically is important to ensure that related documents, policies, and beneficiary designations still reflect current objectives. Changes in family circumstances, asset values, or law may require adjustments in other parts of the estate plan, and coordination of those documents helps preserve the ILIT’s functionality. Trustees and grantors should schedule regular check-ins with counsel to confirm the trust remains funded, notices are documented, and administrative responsibilities are being met.
An irrevocable life insurance trust is a trust established to own life insurance policies so that proceeds pass to the trust rather than directly to the insured’s estate. The grantor creates and funds the trust, transfers existing policies or causes new policies to be issued in the trust name, and outlines how proceeds will be used and distributed. The trustee manages the policy ownership, accepts gifts for premium payments, and follows the trust instructions after the insured’s death. Because the trust owns the policy, the proceeds are handled according to the trust document rather than through probate. Setting up an ILIT requires careful attention to timing and formalities: ownership transfers must be completed and any gifts to the trust documented, and if the grantor retains certain powers the policy proceeds might still be included in the estate. Trustees must keep records, coordinate with insurers, and make distributions as directed. An ILIT complements other estate planning documents by providing controlled distribution and liquidity while reducing the likelihood that insurance proceeds pass through probate.
An ILIT can remove life insurance proceeds from your taxable estate if the trust is properly structured, funded, and timed. Key factors include transferring ownership of the policy to the trust well in advance of death, ensuring the grantor does not retain prohibited incidents of ownership, and adhering to gift tax rules when funding premiums. If these conditions are met, the proceeds paid to the ILIT typically are not included in the grantor’s estate for estate tax purposes, which can reduce the overall estate tax burden for heirs. However, timing and formality matter. Transfers made shortly before death may not achieve the desired result, and retained powers or improper funding procedures can cause inclusion of proceeds in the estate. Working with legal counsel to document transfers, set trustee powers, and follow gifting procedures helps ensure the ILIT functions as intended for estate tax planning and liquidity purposes.
An ILIT is commonly funded when the grantor makes gifts to the trust that the trustee then uses to pay policy premiums. To make premium gifts qualify for the annual gift tax exclusion, trustees often provide beneficiaries with Crummey notices informing them of a temporary right to withdraw the gift. These notices must be timely and documented so gifts are treated as present interest gifts under tax rules, which helps avoid gift tax returns for routine premium funding. A clear record of gifts, notices, and trustee actions is important for compliance and later administration. Funding can also involve transferring ownership of an existing policy into the trust or issuing a new policy owned by the trust. Both options require coordination with the insurance carrier, potential underwriting, and documentation of the change in ownership. Properly documenting each step — from gift letters to notices and carrier confirmations — helps ensure the ILIT is funded correctly and reduces the risk of unintended tax consequences.
Because an ILIT is irrevocable, the grantor generally cannot revoke the trust or unilaterally change beneficiaries after creation. The trust terms govern who receives proceeds, how they are distributed, and who serves as trustee. If circumstances change significantly, options may be limited but can include actions such as seeking court modification in certain situations or using trust provisions that allow for limited adjustments through appointed trust protectors or other mechanisms spelled out in the document. Before creating an ILIT, it is important to consider likely future changes and to draft flexible but protective provisions that anticipate family events, beneficiary needs, and business issues. Dialogue with counsel during drafting can build in mechanisms like successor trustee appointment, discretionary distribution powers, or other limited portability features that align the trust with long-term goals while respecting the trust’s irrevocable nature.
The trustee of an ILIT should be someone who is trustworthy, reasonably available, and capable of managing administrative tasks such as paying premiums, keeping records, sending notices, coordinating with the insurer, and managing distributions. Many grantors select a trusted family member, a close friend, or a professional fiduciary depending on the complexity of the trust and the anticipated administrative load. Consideration should be given to whether the trustee can remain impartial, is familiar with financial matters, and is willing to serve for the long term. If no suitable individual is available, appointing a corporate trustee or co-trustees can provide continuity and professional administration. A co-trustee structure sometimes pairs a family member who understands family needs with a professional who can handle technical and recordkeeping responsibilities. Trustee compensation, successor trustees, and clear instructions in the trust document help ensure effective ongoing administration.
Common pitfalls in creating an ILIT include failing to complete ownership transfers in a timely manner, retaining powers that trigger inclusion of policy proceeds in the grantor’s estate, and neglecting to document gifts and Crummey notices properly. Rushed transfers near the time of death can cause the intended tax outcome to fail, and inadequate notice procedures can jeopardize the availability of gift tax exclusions. Careful coordination with insurance carriers and precise drafting of trust provisions are essential to avoid these pitfalls. Other issues can arise from poor trustee selection, unclear distribution instructions, or failing to plan for successor trustees and administrative continuity. Addressing these matters at the drafting stage and providing trustees with guidance reduces the likelihood of disputes and administrative problems when the policy pays out. Regular review and updates to related estate planning documents also help prevent unintended consequences.
The time required to set up an ILIT depends on factors such as whether a new policy must be underwritten, how quickly ownership transfers can be processed by the insurer, and how promptly clients provide necessary information. Drafting the trust document can typically be completed within a few weeks once objectives are clear, but ownership transfers and funding steps may extend the timeline. Ensuring gifts and transfers occur with enough lead time before an expected event is an important planning consideration to achieve desired tax and estate results. When a new policy is required, underwriting can add additional weeks or months. Coordination between estate counsel, financial advisors, and the insurance carrier streamlines the process. Starting early and following the agreed-upon funding and notice procedures help ensure the ILIT is fully established and funded in a timely manner to meet the grantor’s planning objectives.
An ILIT can affect eligibility for public benefits in some situations because the trust owns the policy and the proceeds are paid to the trust rather than directly to an individual beneficiary. If public benefits eligibility is a concern, especially for a beneficiary who receives means-tested benefits, trust provisions and distribution timing should be crafted with care to avoid jeopardizing those benefits. In some cases, other planning tools or special trust arrangements may be appropriate to preserve benefit eligibility while still protecting life insurance proceeds. Consultation with counsel familiar with public benefits and trust drafting is advisable if eligibility for government programs is a concern. Addressing these issues in the planning stage allows for trust provisions that can manage distributions and protect access to benefits where needed, while still meeting broader estate planning objectives for life insurance proceeds.
The cost to establish an ILIT varies depending on document complexity, the need for coordination with insurance carriers, and whether additional drafting is required to address related planning such as business succession or special needs. Initial drafting and funding coordination typically involve a one-time legal fee, while ongoing administration may incur trustee fees, accounting fees, or other costs related to recordkeeping and investment management. Understanding these costs upfront helps clients weigh the benefits of an ILIT against the administrative and professional fees involved. Choosing a trustee can also affect ongoing costs: a family member trustee may serve at low or no cost, while a professional or corporate trustee charges fees for administration services. Discussing fee structures and expected administrative responsibilities during planning allows clients to budget for both formation and ongoing trust administration and to select a structure that fits the family’s financial and governance needs.
Having a revocable living trust does not necessarily eliminate the need for an ILIT. Life insurance owned personally or by a revocable trust may still be included in the taxable estate depending on ownership and retained rights. An ILIT is specifically designed to own life insurance outside the grantor’s estate and to provide controlled distributions that may offer tax and probate advantages. Whether you need an ILIT depends on factors such as estate size, liquidity needs, and distribution objectives for beneficiaries. If you already have a revocable trust, a review can determine whether an ILIT would add benefits such as tax mitigation, probate avoidance, or protection of proceeds for beneficiaries. Coordination between the revocable trust, beneficiary designations, and an ILIT ensures that policies, accounts, and documents work together to achieve your overall estate planning goals without unintended overlap or conflict.
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