An irrevocable life insurance trust (ILIT) can be an important part of an estate plan for people who wish to remove life insurance proceeds from their taxable estate while providing liquidity to heirs. At the Law Offices of Robert P. Bergman, we help families in Solana Beach and throughout California understand how an ILIT can preserve wealth, pay estate taxes, and provide clear instructions for distribution. This page explains how an ILIT works, what it can accomplish, and how it fits with related documents such as a revocable living trust, pour-over will, and powers of attorney.
Choosing whether to use an ILIT requires careful consideration of family goals, tax consequences, and the timing of transfers. An ILIT can shield insurance proceeds from probate and reduce estate tax exposure when implemented properly. It also creates a vehicle to manage distributions to beneficiaries, protect assets for minors or those with special needs, and coordinate with other trust instruments like life insurance trust agreements and transfer mechanisms. This guide outlines practical steps, common questions, and reasons clients in Solana Beach choose to include an ILIT in their broader estate planning approach.
An ILIT offers several benefits that many families find valuable when organizing their estate plan. By holding a life insurance policy in an irrevocable trust, proceeds from the policy can be excluded from the insured’s taxable estate, potentially reducing estate tax liability and preserving more assets for beneficiaries. The trust structure can also provide controlled distributions to heirs, maintain privacy by avoiding probate, and protect assets from certain creditor claims when properly structured. For families with significant life insurance policies, or those aiming to provide liquidity for estate expenses, an ILIT can be a strategic and flexible planning tool.
Law Offices of Robert P. Bergman has a long history of assisting clients across California with estate planning matters including trusts, wills, advance directives, and guardianship nominations. Our practice emphasizes clear communication, careful document drafting, and practical planning to meet family objectives. We work with clients to design trust arrangements such as ILITs that align with their financial picture and concerns about tax exposure, probate avoidance, and beneficiary protection. Our team takes time to explain the legal mechanics, coordinate with financial advisors when appropriate, and prepare durable documents that reflect each client’s wishes.
An ILIT is a trust that owns one or more life insurance policies on the settlor’s life. Once the policy is transferred into the trust, the trust becomes the legal owner and beneficiary of the policy, and the insured no longer controls the policy or the proceeds. The trustee manages the policy and distributes proceeds to named beneficiaries according to the terms of the trust. Because the insured has relinquished ownership and certain powers, the death benefit generally is not included in the insured’s taxable estate, which can reduce estate tax exposure and provide immediate funds to pay expenses, taxes, or to support beneficiaries.
To be effective for estate tax purposes, transfers into an ILIT and policy ownership must be handled carefully, and timing matters. If the insured transfers an existing policy into an ILIT, a three-year lookback rule may apply under federal tax law, which can affect whether the proceeds remain outside the taxable estate. Alternatively, funding the trust to purchase a new policy can avoid the lookback issue. Trust language should also address gifting, Crummey withdrawal notices when appropriate, how premiums are paid, and how distributions are made. Proper administration preserves the intended tax and estate planning benefits.
An irrevocable life insurance trust is a legal arrangement in which the grantor transfers ownership of a life insurance policy to a trust that cannot be revoked or modified by the grantor except under limited circumstances. The trust document names a trustee to manage the policy and to distribute the proceeds in accordance with the grantor’s instructions. The irrevocable nature means the grantor gives up ownership and control of the policy, which is the key factor that allows the life insurance proceeds to be kept out of the grantor’s estate for federal estate tax purposes, subject to applicable rules and timing restrictions.
Creating and administering an ILIT involves several important components. The trust document must clearly identify the trustee, beneficiaries, and instructions for distribution. The trust must own the insurance policy, and premium payments must be arranged in a manner consistent with the trust terms, often using gifts from the grantor. When gifts are made to the trust to cover premiums, beneficiaries may need to receive Crummey notices to preserve gift tax exclusions. Trustees must also manage policy performance, maintain records, and execute distributions per the trust’s provisions while coordinating with other estate planning instruments.
This glossary covers frequently used terms involved in setting up and maintaining an ILIT. Understanding these definitions helps clients make informed decisions about policy ownership, gifting strategies, and trustee duties. Common terms include grantor, trustee, beneficiary, premium funding, Crummey withdrawal right, and the three-year inclusion rule. Familiarity with these concepts helps ensure that an ILIT is drafted and administered in a way that aligns with legal requirements and client goals. Clear definitions also aid in communication with financial advisors and family members about the trust’s purpose.
The grantor is the person who creates the irrevocable life insurance trust and typically transfers the policy or funds to the trust. In the context of an ILIT, the grantor may also be the insured whose life is covered by the policy. By transferring ownership to the trust, the grantor relinquishes control over the policy and the death benefit, which is necessary for the proceeds to be excluded from the grantor’s taxable estate under applicable rules. The trust document will set out the grantor’s intended instructions for the trustee to follow after the grantor’s death.
The trustee is the individual or institution responsible for managing the ILIT, maintaining the insurance policy, receiving premium funding, and distributing proceeds according to the trust terms. The trustee has fiduciary duties to the beneficiaries and must keep accurate records, handle policy administration, and act in the beneficiaries’ best interest as the trust document directs. Selecting a trustee involves balancing considerations of impartiality, administrative capability, and familiarity with trust management, and may involve family members, professional trustees, or a combination of co-trustees.
Beneficiaries are the people or entities designated to receive the proceeds of the life insurance policy held by the ILIT upon the insured’s death. The trust document specifies how and when distributions will be made, including outright distributions, staggered payouts, or distributions for particular needs such as education or healthcare. The trustee must follow the trust’s instructions, and well-drafted provisions can protect beneficiaries from misuse of funds, provide for minors, and offer support for beneficiaries with disabilities through appropriate trust mechanisms.
A Crummey withdrawal right is a temporary power granted to beneficiaries that allows them to withdraw gifts made to the ILIT for a limited period, typically used to qualify those gifts for the annual gift tax exclusion. The grantor contributes funds to the trust, and beneficiaries receive notice of their temporary withdrawal right. If beneficiaries do not exercise that right, the funds remain in the trust to be used for premium payments or other trust purposes. Proper notification and documentation are essential for preserving the intended tax treatment.
An ILIT is one option among a range of estate planning tools that include revocable living trusts, pour-over wills, and beneficiary designations. Unlike a revocable living trust, an ILIT is irrevocable and usually cannot be changed by the grantor after funding, which creates different tax and control consequences. A revocable trust allows more flexibility but does not remove assets from the taxable estate in the same way. Choosing between options depends on goals such as tax planning, probate avoidance, control over distributions, and family circumstances, and often multiple tools are used together for a comprehensive plan.
When the insured’s overall estate is modest and life insurance policies are relatively small, directly naming beneficiaries on the policy and maintaining a standard revocable trust may be sufficient. In such situations, the potential estate tax benefits of an ILIT may be limited compared to the administrative complexity and permanence of an irrevocable trust. Some clients choose to rely on beneficiary designations combined with clear estate documents because this approach reduces paperwork and retains flexibility for changes over time, which can be appropriate for many families with simpler estates.
If your planning horizon is short and you value the ability to revise arrangements as circumstances change, a less permanent solution may be preferable. A revocable trust or direct ownership with updated beneficiaries allows for amendments and beneficiary changes without triggering tax lookback rules. Those who expect significant changes in assets, family structure, or financial priorities may find that retaining flexibility outweighs the tax advantages of transferring a policy into an ILIT, particularly when estate tax exposure is uncertain or minimal.
Comprehensive ILIT planning is advisable when life insurance proceeds or overall estate values are substantial enough that estate taxes, creditor exposure, or the need for controlled distributions are pressing concerns. In those cases, placing a policy in an ILIT can remove the proceeds from the taxable estate, preserve liquidity for estate obligations, and provide long-term management and protection for beneficiaries. Comprehensive planning also ensures that an ILIT works in harmony with trusts, wills, powers of attorney, and beneficiary designations to avoid unintended tax consequences or conflicts after death.
Families with blended households, beneficiaries with special needs, or a desire to protect inheritances from creditors or divorcing spouses often benefit from a comprehensive ILIT integrated into a full estate plan. The trust can include tailored distribution rules, spendthrift protections, and coordination with a special needs trust or retirement plan trust to ensure funds are used as intended. Working through complex family dynamics and drafting precise trust language helps avoid disputes and preserves the grantor’s intentions for long-term asset protection and beneficiary support.
Incorporating an ILIT into a broader estate plan can yield multiple benefits beyond tax considerations. The trust provides liquidity to pay estate taxes and other expenses, helps avoid probate for the insurance proceeds, and enables tailored distributions to heirs. It can also coordinate with other documents such as a revocable living trust, pour-over will, and powers of attorney to create a cohesive plan. For families with minor children, beneficiaries with special needs, or concerns about creditor claims, an ILIT offers a structured approach to preserve assets and implement long-term intentions.
A comprehensive approach also includes ongoing administration and review to ensure the ILIT operates as intended over time. Trustees must manage premiums, handle notices, and monitor policy performance, while grantors and advisors may revisit beneficiary designations and coordination points. Regular reviews help address changes in tax law, family circumstances, and financial situations so the plan continues to meet goals. Clear documentation and aligned beneficiary designations minimize the risk of disputes and ensure that the trust accomplishes its purpose when it matters most.
One primary benefit of placing life insurance in an ILIT is the potential to remove the death benefit from the grantor’s estate for federal estate tax purposes, subject to applicable rules and timing. This can preserve a larger share of assets for beneficiaries by reducing tax liability. In addition, life insurance proceeds held in a trust provide immediate liquidity to cover estate taxes, debts, and administration costs without forcing the sale of other assets, which can be especially important for estates with significant illiquid property such as real estate or business interests.
An ILIT enables precise control over how proceeds are distributed, including timing, conditions, and purposes for distributions. Trust provisions can protect inheritances from creditors and address the needs of beneficiaries who may not be able to manage large sums responsibly. Because trust distributions do not pass through probate, an ILIT also helps maintain family privacy by avoiding public court records. These features combine to provide a secure, private, and managed means of delivering insurance benefits to intended recipients.
Starting ILIT planning well before anticipated changes in health or ownership is important because federal rules may bring transferred policies back into the estate if the grantor dies within three years of transferring an existing policy. Planning early allows time to structure transactions, consider purchasing a new policy owned by the ILIT, and align premium funding strategies. Early planning also creates room to coordinate beneficiary designations, gift tax planning, and Crummey notices so that the trust’s benefits are achievable without unintended tax consequences.
Reviewing trust provisions and coordinating beneficiary designations across retirement accounts, life insurance, and revocable trusts reduces the risk of conflicting instructions or unintended tax consequences. The ILIT document should clearly state how proceeds are to be used, whether for outright distribution, staged payments, or for the benefit of minor or vulnerable beneficiaries. Periodic reviews are important to address life events such as births, deaths, marriages, and divorces. Clear communication with successors, trustees, and beneficiaries can minimize disputes and help ensure the grantor’s wishes are followed.
Consider an ILIT if you have significant life insurance holdings, want to reduce estate tax exposure, or need to provide protected liquidity for heirs. An ILIT can help preserve family wealth by removing insurance proceeds from the taxable estate, offering immediate funds to pay taxes and expenses, and enabling carefully managed distributions that address the needs of minors or beneficiaries with impaired financial capacity. When combined with other documents like a pourover will and powers of attorney, an ILIT can be a powerful tool in crafting a durable estate plan.
Even if estate tax is not currently a concern, an ILIT may be useful for families seeking privacy, creditor protection, or structured distributions over time. The trust has the flexibility to address unique family goals, including provisions for charitable gifts, education funding, or care for dependents with disabilities through compatible arrangements. Because laws and financial circumstances change, discussing an ILIT with legal counsel helps evaluate whether it aligns with your objectives and how it should be drafted and funded to achieve the intended results.
People commonly consider an ILIT when they have large life insurance policies, own assets that could be subject to estate taxes, or need a mechanism to ensure liquidity for heirs. Other situations include blended families seeking to protect inheritance rights for children from prior relationships, individuals who want to provide long-term support for beneficiaries with special needs, and those who wish to shield proceeds from probate or creditor claims. The ILIT’s design and administration are tailored to the circumstances, and careful drafting ensures it meets the particular needs of each family.
When life insurance benefits are substantial relative to a client’s total estate, placing the policy into an ILIT can help reduce the portion of the estate subject to federal estate tax. This is especially relevant for individuals who own significant business interests, real estate, or retirement assets. By transferring ownership to an ILIT, policy proceeds are generally kept out of the taxable estate, providing liquidity to pay estate-related obligations without diminishing other assets that may be intended for beneficiaries or business continuity.
An ILIT can be structured to provide for beneficiaries who require ongoing support while preserving eligibility for government benefits through coordination with special needs trusts. Careful drafting allows the trustee to distribute funds for specific needs such as medical care, housing, and education without jeopardizing benefit eligibility. Establishing clear trust provisions and working alongside other planning tools gives peace of mind that vulnerable beneficiaries will receive appropriate support while maintaining necessary protections for long-term financial security.
Families with minor children often use ILITs to create controlled distribution schedules that avoid leaving large sums directly to young beneficiaries. The trust can direct the trustee to hold funds until children reach certain ages, achieve milestones such as graduation, or receive funds for defined purposes. This approach helps protect assets from premature spending, provides a clear plan for education and support, and allows parents to set parameters that reflect their values and priorities for their children’s financial future.
Although our firm maintains roots in San Jose, we serve clients throughout California, including those in Solana Beach and San Diego County. We understand local concerns about real estate values, tax considerations, and family dynamics that affect estate planning in this area. Our approach is to listen carefully, explain options in plain language, and craft documents that align with your goals. Whether you need an ILIT created, assistance with trust administration, or coordination with other estate planning elements, we provide practical guidance and attentive client service.
Clients choose our office because we emphasize personalized planning, careful drafting, and responsive service. We take time to learn about family relationships, financial arrangements, and long-term objectives so we can recommend solutions that match those priorities. Our practice focuses on building durable plans that avoid common pitfalls, coordinate across different documents, and anticipate future changes. We guide clients through the mechanics of trust funding, administrative responsibilities, and necessary notifications to preserve tax benefits and meet legal requirements.
Our team believes in clear communication and practical steps rather than unnecessary complexity. We provide straightforward explanations of options such as ILITs, revocable trusts, powers of attorney, and health care directives, and we prepare the documents needed to put a plan into effect. When trustee selection, premium funding, or beneficiary coordination raises difficult questions, we work through those matters with clients and trusted advisors to reach workable solutions that respect each client’s goals and financial capacity.
We also assist with administration after a trust is funded, offering guidance for trustees who may be unfamiliar with their duties. From maintaining records and paying premiums to preparing for benefit distribution, our team helps trustees meet obligations with confidence. We support clients and families during transitions, coordinate with accountants and financial advisors when needed, and provide clear instructions to help ensure the trust functions as intended when the time comes to distribute benefits.
Our process begins with an initial consultation to understand your goals, family structure, and financial circumstances. We review existing policies and estate documents, evaluate whether an ILIT fits your objectives, and explain alternatives. If you decide to proceed, we draft the trust, name trustees and beneficiaries, and coordinate policy transfers or purchases. We also prepare any necessary gift documentation and advise on Crummey notices and premium funding. Finally, we review the completed plan with you, provide execution guidance, and offer ongoing assistance for administration and revisions as circumstances change.
The first step is a comprehensive review of existing estate planning documents, life insurance policies, and the client’s goals for asset distribution and tax planning. We gather information about beneficiaries, family dynamics, and financial accounts to determine whether an ILIT is appropriate. During this stage we discuss potential advantages and tradeoffs, explain timing concerns such as the three-year lookback rule, and outline the documents and actions necessary to implement the trust in a way consistent with the client’s objectives.
We examine current policies to determine ownership, beneficiary designations, and any riders that may affect trust planning. If an existing policy is to be transferred into the ILIT, we analyze potential tax implications and the timing of the transfer. For new policies, we review carrier options and the suitability of the policy for trust ownership. This evaluation helps identify whether premium funding through annual gifts or another mechanism will be needed and what steps are required to preserve the intended tax treatment.
We work with the client to set clear goals for the ILIT, whether the priority is estate tax mitigation, providing liquidity, protecting heirs, or coordinating with other trusts and fiduciary documents. Coordination with financial planners and trustees is discussed to ensure a smooth implementation. We also assess potential implications for beneficiary eligibility for public benefits, the need for companion trusts, and how the ILIT will complement the wider estate plan, adjusting recommendations based on the client’s broader objectives and family circumstances.
Once objectives are set, we draft the ILIT document to reflect the client’s instructions on trustee powers, distribution terms, and special provisions. The drafting phase also addresses premium funding mechanisms, Crummey notices if applicable, and coordination with other plan documents. If a transfer of an existing policy will occur, the paperwork is prepared, and if a new policy is purchased, the trust is structured to be the policy owner. Attention to precise language helps reduce ambiguity and preserves the intended tax and distribution outcomes.
The trust agreement sets out how the trustee will manage the policy, distribute proceeds, and report to beneficiaries. It includes instructions on premium payments, investment direction if funds are held in trust, and conditions for distributions. We tailor trustee powers to balance flexibility for administration with safeguards to protect beneficiaries, and we explain the trustee’s duties so successors understand their responsibilities. Clear instructions help avoid disputes and ease the administrative burden when the trustee takes charge.
We prepare the necessary funding documents and gift records when the grantor transfers funds for premiums or transfers a policy into the trust. This often includes drafting Crummey demand notices for beneficiaries, documenting gifts for tax records, and coordinating with insurance carriers to effect transfers. Thorough documentation ensures that the funding method aligns with tax and trust objectives and provides a clear trail of authority and recordkeeping for the trustee to follow as the policy is maintained and premiums are paid.
After documents are signed and policies are owned by the trust, we assist with execution steps such as delivering policy certificates to the trustee, establishing funding schedules, and issuing initial notices if required. We also provide guidance for regular trust administration tasks including premium payments, recordkeeping, and compliance with notification requirements. Periodic reviews are recommended to address changes in family circumstances, tax laws, or policy performance, so the ILIT continues to serve its intended purpose effectively over time.
We support trustees during the early administration phase, explaining obligations such as maintaining records, communicating with beneficiaries, and managing policy matters. For trustees unfamiliar with these duties, we provide practical guidance on how to document premium payments, issue notices, and coordinate distributions according to the trust instructions. This support helps trustees avoid common missteps that can compromise the trust’s intended benefits and ensures continuity of management for the benefit of the beneficiaries.
An ILIT should not be a one-time project; it requires review as family circumstances and laws change. We recommend scheduled reviews to verify that beneficiary designations, funding plans, and trustee arrangements remain aligned with your goals. Updates may be needed to reflect births, deaths, marriages, divorces, or significant changes in asset values. Routine attention helps preserve tax benefits, avoid unintended inclusion of proceeds in the taxable estate, and keep the plan current with the client’s wishes.
An irrevocable life insurance trust is a trust that owns one or more life insurance policies and cannot be altered by the grantor once funded, except as permitted by the trust terms. The ILIT is designed to keep the policy proceeds outside the grantor’s taxable estate, subject to applicable timing rules. A revocable trust, by contrast, can be changed by the grantor during their lifetime and generally does not remove assets from the taxable estate. Because an ILIT requires the grantor to give up ownership and certain powers over the policy, it achieves estate tax treatment that a revocable trust typically does not. Choosing between an ILIT and a revocable trust depends on goals such as tax planning, control over distributions, and the level of permanence desired. A revocable trust provides flexibility and centralized management of many assets, while an ILIT specifically addresses life insurance proceeds and often complements a broader plan. Reviewing family circumstances, policy size, and tax objectives helps determine whether an ILIT should be part of the overall estate strategy.
Transferring an existing life insurance policy into an ILIT can have tax implications if the insured dies within three years of the transfer because federal tax rules may include the policy proceeds in the transferor’s estate. For this reason, some clients choose to have the ILIT purchase a new policy or transfer an existing policy well before any expected need for the trust’s benefits. Gifts used to fund premiums may also have gift tax implications, though properly documented annual exclusion gifts using Crummey notices can often help minimize present gift tax consequences. Careful planning and documentation are key to achieving the intended tax outcomes. The grantor and trustees should keep accurate records of gifts, notices, and funding arrangements. Consulting with legal counsel and coordinating with financial advisors helps ensure transfers and premium funding are executed in a way that aligns with current tax rules and the client’s objectives while minimizing the risk of unintended inclusion in the grantor’s taxable estate.
Once the ILIT owns the policy, premium payments are typically made through gifts from the grantor to the trust. The trust then uses those funds to pay the insurance carrier. To preserve annual gift tax exclusions, the grantor often makes gifts equal to the premium amount and beneficiaries receive Crummey notices that give them a short-term right to withdraw the gift. If beneficiaries do not withdraw the funds, the trustee applies them to pay premiums. Proper documentation of these gifts and notices is essential for maintaining the desired tax treatment and clear records for trustee administration. Some clients arrange to have other assets produce income held by the trust to cover premiums, or they designate a funding schedule that works with family cash flow. Whatever method is chosen, trustees must keep clear records of receipts and payments, maintain correspondence with the insurer, and follow trust instructions. Coordination with financial advisors aids in making the funding plan sustainable and aligned with overall financial planning objectives.
Naming a revocable trust or individual beneficiaries as policy beneficiaries is an alternative to creating an ILIT, but it does not provide the same estate tax protection that an ILIT can offer. When a revocable trust or the insured retains ownership or certain powers over the policy, the death benefit is more likely to be included in the insured’s taxable estate. An ILIT transfers ownership out of the grantor’s estate and creates an independent vehicle for managing insurance proceeds, which can be preferable when the goal is to reduce estate tax exposure or to control distributions beyond a simple beneficiary designation. Using a revocable trust or beneficiary designations can be appropriate when flexibility and the ability to change arrangements are primary concerns, or when estate tax exposure is low. Each option carries tradeoffs related to control, tax consequences, and administration. Careful review of the insured’s financial picture and objectives helps determine whether naming beneficiaries directly or establishing an ILIT best meets the family’s needs.
The three-year rule is a federal tax provision that can include life insurance proceeds in the insured’s gross estate if the insured transfers an existing policy into a trust and dies within three years of that transfer. This lookback period is intended to prevent transfers made shortly before death from avoiding estate inclusion. Because of this rule, some clients choose to have an ILIT purchase a new policy rather than transferring an existing one, or they plan transfers well in advance to avoid the three-year window. Understanding the three-year rule is essential when timing transfers and purchases. If a transfer into an ILIT is necessary and the insured’s health is uncertain, other planning techniques may be considered to achieve similar goals while managing the risk. Consulting with counsel about the timing of transfers and alternative funding strategies helps protect the intended tax and estate outcomes.
A Crummey notice is a written notification to beneficiaries that informs them of a limited right to withdraw a gift made to the trust. The purpose of these notices is to allow the gift to qualify for the annual gift tax exclusion by showing that beneficiaries had a present interest in the gifted funds. Typically, beneficiaries have a brief period in which they could withdraw the gift, but in many cases they do not exercise that right, leaving the funds available to the trustee to pay insurance premiums or other trust purposes. Proper delivery and recordkeeping of Crummey notices are important for preserving tax benefits. Trustees should document when notices are sent and retain any beneficiary responses. Consistent administration and accurate records provide evidence that the annual exclusion was applied correctly. Working with legal counsel ensures that notices and procedures are tailored to meet statutory requirements and the trust’s funding strategy.
Selecting a trustee for an ILIT involves balancing administrative ability, impartiality, and trustworthiness. Individuals such as a trusted family member or friend can serve as trustee if they are willing and capable of managing policy details, maintaining records, and communicating with beneficiaries. Some clients prefer a corporate trustee or professional fiduciary for continuity and administrative experience, particularly when the trust’s responsibilities involve ongoing premium payments, investments, or complex distribution rules. Co-trustees can also be appointed to combine personal knowledge with professional administration. When choosing a trustee, consider the trustee’s availability, familiarity with financial matters, and comfort with fiduciary duties. The trust should provide clear guidance on trustee powers, compensation, and successor procedures to avoid confusion. Regular communication and support at the outset help trustees understand their role and fulfill obligations reliably, minimizing the risk of mismanagement and ensuring the trust functions as intended for beneficiaries.
An ILIT can be structured to provide for a beneficiary with special needs, but careful coordination is necessary to avoid disqualifying the beneficiary from government benefits. Rather than distributing proceeds directly, the ILIT can fund a separate special needs trust or include provisions that limit distributions for supplemental needs such as medical care, housing, and therapy. The trust language must be precise to preserve benefit eligibility while enhancing the beneficiary’s quality of life through supplementary support that does not replace government-provided essentials. Collaborating with counsel experienced in benefits planning helps craft compatible trust language and distribution mechanisms. This coordination often involves setting up a companion trust that receives ILIT distributions for approved supplemental purposes. Properly structured arrangements provide meaningful support to a beneficiary with special needs while maintaining eligibility for public assistance programs and safeguarding long-term financial security.
After the insured’s death, the ILIT trustee files the necessary claims with the insurance carrier to collect the death benefit. Once proceeds are received, the trustee administers distributions in accordance with the trust terms, which might include lump sum payments, staged distributions, or payments for specific needs. Trustees have fiduciary duties to manage funds prudently, keep beneficiaries informed, and follow trust provisions closely. Proper administration includes recordkeeping, tax filings if required, and ensuring the funds are disbursed as directed to achieve the grantor’s intentions. If the trust includes specific conditions or protections for beneficiaries, the trustee implements those directives while balancing the need for transparency and fairness. The trustee may also work with financial advisors to invest proceeds conservatively to meet future distribution obligations. Clear documentation and adherence to the trust’s language help minimize disputes and ensure that the trust accomplishes its intended objectives for the family.
Regular review of an ILIT and related estate planning documents is recommended whenever there are significant life changes such as births, deaths, marriages, divorces, or substantial changes in asset values. Changes in federal or state tax law can also affect the optimal structure for holding life insurance proceeds. Routine periodic reviews help ensure beneficiary designations remain current, funding strategies remain sustainable, and trustee arrangements still make sense for the family’s circumstances and goals. A thoughtful review may lead to adjustments in premium funding plans, trustee appointments, or coordination with other trusts and retirement accounts. Even though an ILIT is irrevocable, related documents and funding mechanisms can be revisited and updated where appropriate to maintain alignment with the client’s objectives. Regular check-ins with legal counsel and financial advisors preserve the effectiveness of the plan over time.
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