An Irrevocable Life Insurance Trust (ILIT) can be an effective tool for managing life insurance proceeds outside of a taxable estate and providing clear, controlled distributions to beneficiaries. At the Law Offices of Robert P. Bergman, we help clients in Oceano and San Luis Obispo County understand how an ILIT fits into broader estate planning goals. This guide outlines the purpose of an ILIT, how it operates, and common considerations when deciding whether to include one in your plan. We prioritize clear communication and practical planning to help families protect their financial legacy and ensure wishes are followed.
Choosing to establish an ILIT involves important decisions about ownership, trustee selection, funding, and beneficiary designations. This page explains how an ILIT differs from other tools such as revocable living trusts and pour-over wills, and when an irrevocable vehicle may be appropriate for your family. Our aim is to provide straightforward information so you can weigh advantages and trade-offs, understand potential tax implications, and prepare for the administrative tasks an ILIT requires. If you need personalized guidance, contact our office to discuss how an ILIT might support your estate plan and help preserve assets for your loved ones.
An ILIT plays a unique role in estate planning by separating life insurance proceeds from a grantor’s taxable estate and providing structured distributions to beneficiaries. Beyond potential estate tax benefits, an ILIT can create spending safeguards for younger or vulnerable beneficiaries, enable more predictable liquidity to pay estate obligations, and preserve policy proceeds for their intended use. Trustees can manage proceeds according to terms set by the trust, reducing uncertainty and protecting assets from certain creditor claims. While not appropriate for every situation, an ILIT is a strategic option for clients looking to align insurance benefits with long-term family and financial objectives.
The Law Offices of Robert P. Bergman provides estate planning services tailored to individuals and families across San Luis Obispo County, including Oceano. Our approach centers on listening to client priorities, explaining legal options in clear terms, and drafting estate plans that reflect family dynamics and financial realities. We assist with trusts, wills, powers of attorney and related documents, helping clients coordinate life insurance within a comprehensive plan. Our focus is practical planning that anticipates personal and legal changes, keeping client goals and family protection at the forefront of every recommendation and document prepared.
An ILIT is a trust that owns and controls a life insurance policy, with the policyholder transferring ownership to the trust and giving the trust the right to receive policy proceeds. Once established and properly funded, the trust becomes the legal owner of the life insurance, and proceeds may pass to beneficiaries according to trust terms. Because the policy is outside the grantor’s estate, proceeds may be excluded from estate tax calculations in many cases. An ILIT also requires careful attention to timing, premium payments, and trust administration to achieve intended tax and protection outcomes.
Setting up an ILIT involves drafting trust terms, naming a trustee, transferring or purchasing a life insurance policy within the trust, and creating mechanisms for premium payments and beneficiary distributions. Grantors must avoid retaining incidents of ownership in the policy to maintain the intended estate treatment, and they should understand how gift tax reporting and Crummey notices may apply when the trust receives gifts to pay premiums. Proper coordination with existing estate documents and beneficiary designations ensures consistency and reduces the risk of unintended results for heirs and trustees.
An ILIT is an irrevocable trust created to own a life insurance policy for the benefit of named beneficiaries. The grantor transfers a policy or funds to the trust, and the trustee manages the policy, paying premiums and receiving proceeds at the insured’s death. The trust directs how proceeds are to be distributed, which can include lump sums, staged payments, or ongoing support. By removing the policy from the grantor’s estate and limiting ownership rights, an ILIT can help minimize estate tax exposure and provide structured, protected benefits to heirs, subject to careful drafting and administration.
Creating an ILIT requires attention to several essential elements: precise trust language that avoids retained ownership rights, selection of a trustee who will manage policy and distributions, and clear instructions for premium funding and beneficiary treatment. Practical processes include transferring ownership of an existing policy or arranging for a new policy to be issued to the trust, coordinating premium contributions, and maintaining documentation for gift tax filings when applicable. Ongoing administration involves recordkeeping, providing beneficiary notices when required, and timely handling of proceeds after an insured event to meet legal and family obligations.
Understanding the specialized terms associated with ILITs will help you follow the planning process and make informed decisions. This glossary covers common words and phrases used in trust documents, tax communications, and trustee responsibilities. Familiarity with these terms—such as grantor, trustee, Crummey rights, incidents of ownership, and funding mechanics—reduces confusion and helps ensure that plan documents are interpreted and implemented according to your intentions. Clear definitions also facilitate discussions with financial advisors and insurance carriers during trust setup and administration.
An Irrevocable Life Insurance Trust is a legal entity created to own a life insurance policy and direct how policy proceeds are managed and distributed after the insured’s death. The grantor establishes the trust and intentionally gives up ownership rights over the policy to place it outside their taxable estate. The trust document names a trustee to pay premiums, manage policy administration, and distribute proceeds under the terms set in the trust. Properly drafted and funded, an ILIT provides a structured mechanism to protect insurance benefits for beneficiaries and coordinate with broader estate planning goals.
Crummey rights allow trust beneficiaries a temporary right to withdraw contributions made to the trust, which can qualify those contributions as present interest gifts for gift tax annual exclusion purposes. When an ILIT receives funds to pay insurance premiums, trustees typically provide notice to beneficiaries that they may withdraw a portion of the gift for a limited time, supporting tax-favorable treatment. Administratively, trustees maintain records of notices and any withdrawals, ensuring that the trust continues to receive funds for premiums while complying with gift tax reporting requirements and preserving the intended tax benefits.
Incidents of ownership are rights or powers over a life insurance policy that, if retained by the grantor, can cause the policy proceeds to be included in the grantor’s taxable estate. Examples include the power to change beneficiaries, cancel the policy, or borrow against it. When establishing an ILIT, the grantor must avoid retaining such rights to preserve the trust’s estate planning purpose. Drafting the trust and coordinating policy ownership carefully prevents the re-transfer of ownership powers and helps ensure that the policy remains outside the grantor’s estate for tax purposes.
A trustee of an ILIT is charged with managing the trust and carrying out its terms, including paying insurance premiums, keeping accurate records, issuing notices to beneficiaries, and distributing proceeds at the appropriate time. Trustees must act in accordance with the trust document and applicable law, making prudent decisions that reflect the grantor’s intent. Selecting a trustee who can handle administrative duties, tax reporting, and communication with beneficiaries is essential to effective trust operation. Clear instructions in the trust can simplify administration and reduce disputes among beneficiaries.
An ILIT serves a different function than a revocable living trust or a pour-over will, and comparing options helps determine which tools meet a particular family’s needs. A revocable trust offers flexibility during the grantor’s life but does not remove assets from the taxable estate, while a pour-over will funnels assets to a trust on death. An ILIT specifically targets life insurance ownership and distribution. Evaluating each option’s tax implications, administrative requirements, and ability to protect assets or provide controlled distributions will guide whether an ILIT or an alternative approach best complements your overall plan.
If life insurance proceeds are modest relative to estate size and beneficiaries are financially independent, a simple beneficiary designation or revocable trust may be adequate. In such situations, the administrative complexity and ongoing requirements of an ILIT may outweigh potential benefits. A limited approach can provide straightforward liquidity to heirs without the need for irrevocable ownership structures. Careful review of family circumstances, estate composition, and potential tax exposure helps determine whether a simpler arrangement will achieve your goals without unnecessary cost or loss of flexibility.
Some clients prefer to retain flexibility to change beneficiary designations, adjust policy coverage, or manage assets directly during their lifetime. When flexibility is a priority, revocable arrangements or maintaining personal ownership of a policy may better align with those preferences. Such choices preserve the ability to respond to life changes without the constraints of an irrevocable structure. A thoughtful review of anticipated changes, health considerations, and long-term intentions can clarify whether maintaining control outweighs the protections an ILIT can provide.
When life insurance policies represent a significant portion of an estate’s value, placing a policy in an ILIT can help reduce estate tax exposure and provide clear protection for beneficiaries. A well-structured trust can also shield proceeds from certain claims and ensure funds are used as intended, such as for education, income replacement, or debt repayment. For families with significant policy proceeds and complex financial situations, integrating an ILIT into a broader estate plan offers a way to secure funds for heirs while coordinating with other trust and tax planning strategies.
An ILIT helps align life insurance with long-term family objectives by setting terms for distribution, timing, and oversight. This is valuable when beneficiaries include minor children, individuals with special needs, or those needing protection from creditor claims. Integrating life insurance into a cohesive estate plan ensures that proceeds support intended outcomes rather than being consumed by immediate expenses or mismanagement. Comprehensive planning considers tax, guardianship, retirement, and trust provisions so that insurance proceeds advance the family’s financial security over time.
Including an ILIT within an integrated estate plan can offer multiple benefits: potential estate tax mitigation for large policies, structured distributions for beneficiaries, and protection of proceeds from certain claims. An ILIT complements other planning documents by offering dedicated handling of insurance proceeds, reducing ambiguity for survivors and simplifying the executor or trustee’s responsibilities. Coordinated planning can also address premium funding methods and beneficiary interactions, ensuring that life insurance proceeds fulfill the grantor’s intentions in a predictable manner that supports family and financial continuity.
A comprehensive approach reduces the risk of contradictory beneficiary designations or competing instructions among estate documents. Properly drafted trust provisions allow the grantor to specify how distributions should be used, such as for education, debt repayment, or long-term care for a dependent. Trustees can be instructed to manage proceeds prudently and to communicate transparently with beneficiaries. This clarity helps prevent disputes and facilitates smoother trust administration after an insured event, making it easier for families to focus on recovery and transition rather than navigating legal uncertainty.
Placing large life insurance policies in an ILIT can create liquidity outside the taxable estate, which may ease estate settlement and help heirs pay taxes and final expenses without liquidating other assets. By designating proceeds to the trust, a grantor can ensure beneficiaries receive funds in a timely manner under specified conditions, helping to preserve family holdings and reduce stress during estate administration. The availability of liquid resources through an ILIT supports orderly transitions and can be especially valuable when non-liquid assets, such as real estate or business interests, form the core of the estate.
An ILIT provides mechanisms for controlling how and when beneficiaries receive insurance proceeds, which can protect funds from premature depletion or from claims by creditors. Trust terms can create staged distributions, income streams, or conditions for access that match the grantor’s intentions and the beneficiaries’ needs. This controlled approach is beneficial for families with young beneficiaries or those needing oversight. A trustee can administer distributions responsibly, balancing immediate needs with long-term preservation of assets to support beneficiaries across generations.
Begin planning for an ILIT well before policy issues are imminent to allow time for proper transfers, coordination with existing estate documents, and any necessary gift tax considerations. Early planning helps avoid last-minute mistakes that could compromise the desired estate treatment of insurance proceeds. Coordinate beneficiary designations, powers of appointment, and related trust language so documents are consistent. Communicate with your insurance carrier about ownership changes and ensure the trust meets company requirements for policy ownership to prevent administrative complications down the line.
Establish a reliable method for funding premium payments to the trust, whether through annual gifts to beneficiaries for Crummey notices, direct contributions to the trust, or other coordinated funding strategies. Maintain clear records of premium payments, gift notices, and any transfers to demonstrate compliance with tax rules and trust terms. Planning funding mechanics minimizes the risk of missed payments and potential policy lapse, ensuring the trust retains the intended protection and that beneficiaries receive the planned benefits at the appropriate time.
An ILIT is worth considering if you own life insurance policies with proceeds that could significantly affect estate tax exposure or if you want to ensure that proceeds are managed and protected for specific beneficiaries. It can also be helpful when liquidity is needed to settle estate obligations without forcing sale of illiquid assets. Additionally, an ILIT provides a structured approach to defining how proceeds are used, helping families address long-term financial needs, support minors, and reduce potential disputes over large lump-sum payments.
Another reason to consider an ILIT is to create a clear, arms-length mechanism for handling insurance benefits separate from personal finances. This separation can serve to protect proceeds from certain creditor claims and provide trustee oversight when beneficiaries may require guidance. For those who value predictability, an ILIT allows precise instructions regarding distribution timing and conditions, which can help preserve assets for future generations and provide continuity in financial support aligned with the grantor’s priorities.
Common situations that prompt consideration of an ILIT include owning large life insurance policies, having complex family dynamics such as blended families, needing to protect proceeds for minor or vulnerable beneficiaries, or seeking to provide liquidity for estate settlement. Business owners may also use an ILIT to ensure proceeds are available for buy-sell arrangements or business continuity. Each circumstance requires careful review to tailor trust terms and funding to the family’s financial profile and long-term goals, ensuring the trust supports intended outcomes.
When life insurance proceeds represent a substantial part of an estate, an ILIT can help manage the tax and distribution impact of those funds. By moving ownership to a trust, grantors can often reduce exposure to estate taxes and ensure that proceeds are managed according to clear instructions. The trust can provide for timely liquidity to pay taxes and expenses while preserving principal for beneficiaries. Planning in advance allows for appropriate funding strategies and trust provisions that align with the family’s broader estate objectives.
When beneficiaries include young children or individuals who need ongoing support, an ILIT can provide structure and oversight for distributing life insurance proceeds. Trust terms may create staged distributions, income provisions, or conditions that promote long-term well-being and financial stability. A trustee can manage funds responsibly and coordinate distributions to meet educational, healthcare, or living needs. This protective approach helps prevent premature depletion of funds and ensures proceeds serve the intended beneficiaries in a sustainable manner.
Business owners and those with illiquid estate assets often rely on life insurance for liquidity to pay taxes, debts, or to fund buy-sell agreements. An ILIT ensures proceeds are directed and managed to support these purposes without being commingled with personal assets. This separation helps maintain business continuity and preserves the estate’s operating assets. Thoughtful trust provisions can align insurance distributions with business timelines, creditor considerations, and family needs so that the transition after an insured event is orderly and financially manageable.
The Law Offices of Robert P. Bergman serves Oceano and surrounding San Luis Obispo County communities with estate planning services tailored to local needs. We understand regional issues such as property ownership patterns, family structures, and tax considerations that affect trust and estate choices. Our practice aims to provide clear, practical guidance for clients considering ILITs, revocable trusts, wills, and related documents. If you are planning for the future or reviewing an existing estate plan, we can help clarify options and prepare documents designed to reflect your family’s priorities and circumstances.
Clients choose the Law Offices of Robert P. Bergman for a personal approach to estate planning that focuses on clear communication, practical solutions, and careful drafting. We help clients evaluate whether an ILIT fits their overall plan, coordinate insurance ownership changes, and ensure that trust provisions align with family goals. Our process emphasizes listening to client priorities, reviewing financial and family situations in detail, and delivering documents that are thorough and legally sound. We strive to make the planning process understandable and manageable for families.
We take care to coordinate estate documents, beneficiary designations, and trust administration planning so that the plan functions smoothly when needed. Our team guides clients through funding methods, trustee selection, and administrative considerations such as gift notices and premium payment tracking. We also provide ongoing support for updates and modifications as family circumstances and laws change. This continuity helps preserve client intent and provides families with confidence that their estate plan will operate as intended when it matters most.
Our office works with clients to prepare a complete estate plan that addresses life insurance, trusts, wills, powers of attorney, and healthcare directives. We emphasize clarity and practicality in drafting and provide clients with documentation and instructions that facilitate trust administration. Whether you are establishing an ILIT or reviewing an existing plan, we help identify potential gaps and recommend adjustments that support long-term family and financial objectives. Contact us to discuss your situation and learn how an ILIT might fit within your estate plan.
Our process for creating an ILIT begins with an in-depth discussion of your goals, existing estate documents, and insurance arrangements. We review policies, determine the appropriate trust language, and advise on funding mechanisms and trustee selection. After drafting and executing the trust, we assist with transferring policy ownership, completing beneficiary changes where needed, and documenting funding plans for premium payments. We also provide guidance on administrative requirements, such as beneficiary notices and recordkeeping, to support smooth trust operation over time and after an insured event.
The first step involves a thorough review of your current estate planning documents, insurance policies, and family circumstances. We discuss your objectives for the life insurance proceeds, identify potential tax and administrative considerations, and outline trust structure options that match your goals. This planning session sets the foundation for drafting a trust that reflects your priorities, clarifies trustee duties, and establishes a method for premium funding. By taking time at the outset to align documents and intentions, we reduce the risk of unintended results and streamline subsequent steps.
During document review we examine existing wills, trusts, powers of attorney, and beneficiary designations to ensure consistency and identify conflicts. Goal setting focuses on how you want insurance proceeds used—whether for liquidity, debt payment, education, or ongoing support—and the level of oversight and protection beneficiaries will need. We consider tax implications and discuss trustee qualifications so that trust terms can be tailored accordingly. Having comprehensive information up front enables precise drafting and reduces the need for corrections later in the process.
We evaluate whether an existing policy should be transferred to the trust or whether a new policy should be issued to the ILIT. This step includes coordination with insurance carriers to verify transfer rules, cost implications, and any contestability concerns. We also plan for premium payment approaches, such as annual gifts subject to Crummey notices or direct trust funding. Ensuring that the transfer is structured to avoid retained incidents of ownership is essential to preserving the intended estate planning benefits.
After planning, we draft the ILIT document with precise language addressing ownership, trustee powers, distribution terms, and funding procedures. We review the draft with you to confirm it reflects your intentions and make any necessary revisions. Execution typically requires signing with proper formalities and coordinating with financial institutions or the insurance carrier for ownership transfer. We assist with documentation and gift reporting where needed, and we help establish the funding cadence so that premiums are paid and the trust maintains the policy without interruption.
Trust terms must be clear about the trustee’s authority to manage premiums, invest trust funds, provide notices, and distribute proceeds. We craft instructions that make administration straightforward, including naming successor trustees and providing guidance for common scenarios. Clear trustee powers help prevent disputes and allow the trustee to act promptly when policy proceeds are payable. Preparing these instructions during drafting reduces ambiguity and sets expectations for how funds will be managed after an insured event.
Execution involves signing the trust, coordinating with the insurance company to change policy ownership and beneficiary designations, and documenting the transfer. We guide clients through each administrative step and confirm that the carrier’s records reflect the trust as owner. Proper documentation and timely communication ensure that the policy is legally owned by the ILIT and that the trust will receive proceeds according to its terms. We also advise on any immediate funding actions required to keep the policy in force.
After the ILIT is established, the trustee must handle premium payments, maintain records, and issue beneficiary notices as appropriate. We provide guidance on ongoing administration, including recordkeeping for gift tax purposes and supporting trustees in distribution decisions. When the insured passes away, the trustee files claims, collects proceeds, and administers distributions per trust directives. We can assist with probate or related estate matters if needed, and we support trustees in carrying out their duties to ensure beneficiaries receive the trust benefits as intended.
Maintaining detailed records of contributions, premium payments, beneficiary notices, and trust activity is essential for compliance and clear administration. When gifts to the trust trigger tax-reporting requirements, accurate documentation helps support filings and demonstrates that contributions were used for premiums. Trustees should track all transactions and retain communications with the insurance company. Proper recordkeeping reduces future disputes and provides a clear trail of how the trust was funded and managed over time.
When the insured dies, the trustee files the claim with the insurance carrier, collects proceeds, and administers distributions per the trust terms. Trustees should follow any trust instructions regarding payment schedules or conditions and communicate with beneficiaries about the process. Legal and tax considerations may arise during administration, and our office can support trustees with paperwork, tax forms, and interpretation of trust provisions. Clear communication and methodical administration help beneficiaries receive their benefits smoothly and in accordance with the grantor’s wishes.
An Irrevocable Life Insurance Trust is a trust created to own and control a life insurance policy so that policy proceeds are paid to the trust and distributed according to trust instructions. The grantor transfers ownership of the policy to the trust and names beneficiaries who will receive the proceeds. Because the trust owns the policy, proceeds may be kept out of the grantor’s taxable estate when the arrangement is properly structured. Trustees handle premium payments, policy administration, and distributions as set forth in the trust document. Setting up an ILIT requires careful drafting to avoid retained ownership rights that could negate the intended estate treatment. The trust must be funded to allow premium payments, and beneficiaries may receive notices when contributions are made to support gift tax exclusion. An ILIT provides structure and direction for insurance proceeds, helping ensure funds are used as intended and reducing administrative uncertainty for heirs.
Transferring ownership of a policy to an ILIT means the grantor gives up the rights of ownership, which reduces personal control over policy actions such as beneficiary changes, loans, or surrender. This lack of direct control is part of how the trust achieves its estate planning purpose. The trustee, acting under the trust terms, assumes responsibility for those decisions and manages the policy in the best interests of the beneficiaries according to the grantor’s instructions. If maintaining flexibility is important, alternatives to an ILIT may be considered. Working through the options during the planning stage helps align your preferences with the legal effects of trust ownership. Clear trust provisions and trustee selection can provide confidence that the policy will be managed consistent with your wishes while achieving desired estate planning goals.
Premiums for a policy owned by an ILIT are generally paid by the trust, which receives funding from the grantor in advance. Common methods include annual gifts to the trust that the trustee then applies to premium payments, often accompanied by beneficiary notices to qualify for gift tax exclusion. These planning steps help ensure the trust remains funded and the policy stays in force without the grantor retaining ownership rights. Planning premium funding requires careful coordination to avoid lapses and to comply with tax rules. Maintaining consistent records of contributions, notices, and payments is important for trust administration and tax reporting. Establishing a clear funding mechanism at the outset reduces the risk of missed payments and preserves the intended benefits of the trust.
An ILIT can help reduce estate tax exposure by removing the insurance policy from the grantor’s taxable estate when ownership and control are properly relinquished. Because the trust, rather than the individual, owns the policy, proceeds payable at death are typically not included in the grantor’s estate for federal estate tax purposes when the arrangement avoids retained incidents of ownership. This separation can be particularly important when policy proceeds are significant relative to overall estate size. California does not impose a separate estate tax at the state level, but federal estate tax considerations still apply for larger estates. Proper timing, drafting, and administration are essential to achieve intended tax outcomes, and coordination with other estate planning tools helps ensure that the ILIT functions as part of a cohesive plan to manage tax exposure and provide for beneficiaries effectively.
A trustee for an ILIT should be someone or an entity you trust to handle administrative duties, make prudent decisions, and communicate with beneficiaries. Options include a trusted family member, a friend with financial acumen, or a professional fiduciary. The trustee must be capable of paying premiums, maintaining records, issuing required notices, and following trust provisions for distributions. Naming successor trustees helps avoid lapses in administration if the primary trustee becomes unable or unwilling to serve. Selecting the right trustee depends on family dynamics, the complexity of the trust, and the expected administrative workload. Discussing trustee duties with potential appointees and considering their availability and willingness to serve ensures smoother trust operation. Clear written instructions in the trust and support from legal counsel can assist trustees in fulfilling their responsibilities effectively.
Crummey notices provide beneficiaries a limited right to withdraw gifts made to a trust, which can allow those gifts to qualify for the annual gift tax exclusion. When the grantor contributes funds to an ILIT for premium payments, the trustee typically sends notices informing beneficiaries of their temporary withdrawal right. Even if beneficiaries do not exercise that right, the notice helps characterize the contribution as a present interest gift for tax purposes, enabling favorable treatment of annual gifts used to fund premiums. Administering Crummey notices requires consistent documentation and a practical process for providing timely notices to beneficiaries. Trustees should maintain records of notices and any withdrawals. Legal guidance ensures notices are structured correctly and that trust funding aligns with applicable tax rules, helping preserve the intended benefits of the ILIT while preventing inadvertent tax issues.
It is often possible to transfer an existing life insurance policy to an ILIT, but the decision depends on policy terms and timing. Transferring ownership requires coordination with the insurance carrier and careful review of whether the policy’s terms permit assignment without adverse consequences. A transfer may also trigger a three-year lookback rule for estate tax purposes if the grantor retains certain rights or otherwise fails to meet required conditions, so timing and planning are important. Purchasing a new policy directly in the name of the trust can avoid transfer complications and the lookback period, but that option depends on insurability and cost. Evaluating the relative advantages of transferring an existing policy versus obtaining a new policy involves insurance carrier rules, health underwriting, and the client’s estate planning timeline. Legal and insurance advice together inform the best route for your circumstances.
An ILIT should be coordinated with your will and revocable living trust so that documents do not conflict and beneficiary designations are consistent. A pour-over will can move assets into a revocable trust at death, but an ILIT specifically governs life insurance proceeds and operates independently of revocable trust provisions. Ensuring that beneficiary designations on insurance policies and retirement accounts align with trust and estate documents prevents unintended results and reduces the likelihood of probate disputes. During planning, we review your existing wills, trusts, and beneficiary forms to confirm consistency and to update documents as needed. Clear cross-references and complementary provisions help ensure that the ILIT integrates smoothly into your overall estate plan and that all assets will be administered according to your intentions.
If premium payments are missed on a policy owned by an ILIT, the policy could lapse, which would defeat the intended estate planning purpose and potentially waste prior contributions. Maintaining a reliable funding mechanism and proactive communication among the grantor, trustee, and beneficiaries helps prevent missed payments. Trustees should monitor premium schedules and maintain sufficient trust funds or coordinate timely contributions to keep the policy in force. If a lapse occurs, options may be limited but may include reinstatement within carrier timeframes or purchasing a new policy if insurability allows. Acting quickly and consulting with legal and insurance advisors is important to assess remedies. Planning for contingencies and documenting funding arrangements reduces the risk of lapse and preserves the trust’s function.
Beneficiaries receive proceeds from an ILIT according to the distribution terms set forth in the trust document. The trustee files a claim with the insurance company, collects proceeds, and then follows the trust’s instructions regarding timing and form of distribution. This can mean lump-sum payouts, staged distributions, or managed payments over time, depending on the grantor’s directions and the beneficiaries’ needs as expressed in the trust. Trust administration may involve tax filings, payment of debts or expenses, and coordination with other estate processes. Trustees should keep beneficiaries informed of the timeline and the steps being taken. Clear trust language and careful trustee management help ensure that beneficiaries receive the intended benefits smoothly and in alignment with the grantor’s wishes.
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