An irrevocable life insurance trust (ILIT) is a legal arrangement used to own and control life insurance policies outside of an individual’s taxable estate. For families in Highlands-Baywood Park and throughout San Mateo County, an ILIT can preserve the value of a life insurance benefit for heirs, provide liquidity to pay estate obligations, and protect policy proceeds from probate. The Law Offices of Robert P. Bergman provides focused estate planning services from our San Jose location and can help you assess whether an ILIT fits within your broader plans for trusts, wills, powers of attorney, and healthcare directives.
Creating an ILIT requires careful planning, proper funding, and clear trustee instructions so policy premiums and benefits achieve the intended outcomes. Many clients already have documents such as a Revocable Living Trust, Last Will and Testament, or Power of Attorney and seek specific trust structures for life insurance. Our approach emphasizes practical steps that align with California law and family goals, explaining how mechanisms like a general assignment to trust, certification of trust, and pour-over wills interact with the ILIT. If you are considering an ILIT, a thoughtful review of ownership, beneficiaries, and funding timing is essential.
An ILIT can reduce estate tax exposure, ensure life insurance proceeds pass to intended beneficiaries outside probate, and provide a reliable source of funds for estate settlement costs or family needs. In California, where estate composition and retirement assets can change over time, using an ILIT helps preserve the full value of a life insurance policy by separating ownership from the insured’s estate. Trustees under an ILIT manage distributions according to the trust instrument, protecting assets for minors or beneficiaries with special circumstances. Thoughtful drafting also addresses creditor concerns and coordinates with retirement plan trusts and other legacy documents.
The Law Offices of Robert P. Bergman in San Jose helps individuals and families across the Bay Area with estate planning services, including trusts and life insurance planning. Our practice focuses on clear client guidance, careful document drafting, and hands-on assistance with trust administration matters. We work with clients to integrate an ILIT into their overall plan alongside documents such as advance health care directives and powers of attorney. From the initial consultation through execution and funding, our goal is to make the process understandable and aligned with each client’s financial and family circumstances.
An ILIT is a trust that becomes the legal owner and beneficiary of a life insurance policy, removing the policy’s value from the insured’s taxable estate. This structure typically requires the grantor to transfer an existing policy to the trust or have the trust purchase a new policy. Once the trust owns the policy, premium payments are made to the trust and managed by the trustee. A properly funded ILIT can provide liquidity to pay estate taxes, equalize inheritances among family members, or support long-term financial goals, while avoiding delays related to probate.
Because ILITs are irrevocable, changes to ownership and beneficiary designations are limited once the trust is established. That permanence helps achieve estate planning objectives but also means thoughtful planning is necessary before funding the trust. An ILIT can interact with other estate tools such as pour-over wills and retirement plan trusts, and it often requires additional paperwork such as a certification of trust or general assignment documents to transfer ownership of a life insurance policy into the trust. Timely funding and clear trustee powers are essential for consistent administration.
At its core, an ILIT establishes a separate legal entity that owns a life insurance policy and controls distribution of insurance proceeds. The trust document names trustees, beneficiaries, and the terms that will govern use of funds after the insured’s death. Once funded, life insurance proceeds paid to the ILIT are handled by the trustee in accordance with the trust’s provisions, which may include lump sum distributions, periodic payments, or restrictions for education, healthcare, or special needs. This arrangement can provide privacy and a clear mechanism for support that bypasses the probate process.
Creating an effective ILIT involves several components: drafting the trust document, naming a trustee, transferring policy ownership or arranging for purchase by the trust, and establishing a method for premium payments. Funding can be achieved by gifting premiums to the trust or through contributions designated for that purpose. Documentation such as an assignment of policy to the trust and a certification of trust may be used to establish ownership. Trustee powers should address claims handling, beneficiary distributions, tax filings, and coordination with other estate planning documents to ensure the ILIT performs as intended.
Knowing the terminology used with ILITs helps clients make informed decisions. Important terms include grantor, trustee, beneficiary, life insurance policy, premium funding, and taxable estate. Understanding these words clarifies who holds legal title, who receives benefits, and how the trust interacts with estate administration and tax rules. Additional related documents, such as a pour-over will, HIPAA authorization, and guardianship nominations, often appear alongside an ILIT in a comprehensive estate plan. Familiarity with the terms can reduce confusion when coordinating multiple documents and working with financial institutions.
The grantor is the individual who establishes the trust and typically transfers assets or ownership of a policy to the trust. In the context of an ILIT, the grantor’s decisions about funding, beneficiary designation, and trustee selection determine how policy proceeds will be handled upon death. Because ILITs are typically irrevocable, the grantor’s choices at creation have lasting effect. The grantor should carefully consider the timing of transfers and potential gift tax implications, and coordinate the ILIT with other estate planning tools such as revocable living trusts and pour-over wills to achieve overall objectives.
A trustee is the person or entity responsible for managing the trust assets and carrying out the trust’s terms. For an ILIT, the trustee handles premium payments if the trust owns the policy, receives and manages insurance proceeds, and makes distributions according to beneficiary instructions. Choosing a trustee involves assessing reliability, administrative capability, and willingness to fulfill fiduciary duties such as recordkeeping and tax filings. Trust documents typically outline trustee powers, succession procedures, and any limitations to guide administration and protect the trust’s purpose over time.
Beneficiaries are the individuals or entities designated to receive distributions from the trust when the life insurance policy pays out. In an ILIT, the trust instrument specifies how beneficiaries receive proceeds—whether in a lump sum, in installments, or under conditions such as achieving age milestones or meeting educational needs. Beneficiary designations within the trust should be coordinated with any beneficiary designations on the life insurance policy to prevent conflicts. A carefully drafted ILIT can ensure that proceeds are preserved for designated beneficiaries and distributed in a manner suited to family dynamics or financial objectives.
Premium funding refers to the method used to supply the trust with funds to pay policy premiums. Common approaches include annual gifts from the grantor to the trust, the use of Crummey notice provisions to qualify gifts for the annual exclusion, or direct contributions timed with premium due dates. Proper documentation of gifts and maintenance of trust bank accounts help demonstrate that premiums were paid by the trust or for the trust, which matters for tax and ownership clarity. Discussions about premium funding should consider cash flow, gift tax rules, and coordination with other estate planning mechanisms.
When deciding whether an ILIT is appropriate, compare it to alternatives such as retaining policy ownership personally with beneficiary designations, using a revocable trust to coordinate assets, or relying solely on a last will and testament. Retaining ownership can keep administrative control but may expose the policy proceeds to estate taxation and probate. A revocable trust offers flexibility but does not remove the policy from the taxable estate if the insured retains ownership. An ILIT is specifically designed to remove insurance proceeds from the estate, but it requires irrevocability and disciplined funding, so weighing pros and cons helps align decisions with financial and family goals.
If a household has modest estate values and straightforward beneficiary arrangements, a limited approach such as keeping a policy in personal ownership with direct beneficiary designations may be sufficient. In such circumstances, the costs and administrative requirements of establishing and maintaining an irrevocable trust may outweigh the possible tax advantages. A focused review of assets, projected estate tax exposure, and family circumstances helps determine whether simpler arrangements can meet objectives while minimizing ongoing trust administration responsibilities and complexity.
When planning horizons are short or significant life changes are expected, a limited approach allows for flexibility. Maintaining personal ownership of a life insurance policy enables the owner to change beneficiaries, adjust coverage, or surrender the policy without the restrictions of an irrevocable structure. This flexibility can be useful during periods of transition, such as pending business sales, changes in family status, or fluctuating asset values. However, if longer-term estate preservation is a priority, converting to an irrevocable arrangement may later be recommended after circumstances stabilize.
A comprehensive approach becomes important when multiple estate planning components must be coordinated—such as revocable living trusts, ILITs, pour-over wills, retirement plan trusts, and powers of attorney. In those cases, ensuring beneficiary designations, trust provisions, and funding mechanisms work together prevents unintended tax consequences or conflicts among documents. Comprehensive planning also addresses practical matters like HIPAA authorizations and guardianship nominations, creating a coherent plan that covers healthcare decisions, asset management, and post-death distribution in a way that reflects the client’s overall goals.
Families with blended structures, beneficiaries with special needs, or significant business and retirement assets often benefit from a comprehensive plan that uses multiple trust types and protective provisions. An ILIT can be combined with a special needs trust, retirement plan trust, or irrevocable life insurance trust to meet unique circumstances. Integrating these tools helps manage distribution timing, preserve public benefit eligibility for vulnerable beneficiaries, and protect assets from potential claims. The result is a tailored plan that addresses immediate needs and long-term legacy objectives.
A comprehensive plan that incorporates an ILIT alongside other documents can provide enhanced control over how and when beneficiaries receive assets while reducing delays from probate. By designating a trust to own life insurance, policy proceeds become immediately available to a trustee to address estate liabilities, support dependents, and implement long-term distributions according to the trust terms. This coordinated approach also helps minimize ambiguity across wills, trust instruments, and beneficiary designations to ensure the grantor’s wishes are carried out smoothly and with appropriate administrative safeguards.
In addition to probate avoidance, a comprehensive strategy can provide tax planning benefits, liquidity for settling final expenses, and protective distribution structures for minors or beneficiaries with unique needs. Including related instruments such as a financial power of attorney and advance health care directive ensures continuity of decision-making if the grantor becomes unable to manage affairs. Careful coordination also reduces the likelihood of disputes and supports efficient trust administration by providing clear directions for trustees and beneficiaries to follow after the grantor’s death.
One of the primary benefits of placing a life insurance policy in an ILIT is removing the policy proceeds from the grantor’s gross estate for estate tax purposes, when structured properly. This can preserve the full value of the policy for beneficiaries and help cover estate taxes or settlement costs without forcing the sale of assets. An ILIT also avoids probate for the insurance proceeds, allowing for quicker access to funds by the trustee and orderly distribution according to the trust’s provisions, reducing administrative delays and potential family tensions.
An ILIT gives the grantor the ability to specify how life insurance proceeds are used after death, including age-based distributions, education funding, or ongoing support for a dependent. This level of control helps ensure funds are used as intended and offers protections against beneficiaries who may be vulnerable to creditors or poor financial decisions. Trustees can be given authority and guidance to manage distributions, invest proceeds prudently, and account to beneficiaries, providing a structured and protective framework that aligns with the donor’s intentions.
Confirm how premiums will be funded before transferring a policy into an ILIT. Common methods include annual gifts to the trust timed with premium payments, using the annual gift tax exclusion with proper notice provisions, or having the trust purchase a new policy and maintain its own payment account. Documenting gifts and keeping accurate records of contributions and trust bank activity helps demonstrate that premiums were properly paid. Thoughtful planning around funding avoids later disputes and supports the intended tax and ownership outcomes.
Ensure beneficiary designations, pour-over wills, retirement plan trusts, and any guardianship nominations are updated to align with the ILIT’s goals. An inconsistent beneficiary designation on the life insurance policy can undermine the trust’s purpose, so assignments, certifications of trust, and other paperwork should reflect the intended ownership and beneficiary structure. Coordination also includes reviewing the estate plan periodically after major life events to confirm the ILIT still meets family needs and financial objectives.
Consider an ILIT if you want to keep life insurance proceeds out of your taxable estate, provide immediate liquidity to settle final expenses, or establish controlled distributions for beneficiaries. An ILIT is also a useful tool when you wish to protect life insurance benefits from probate delay and provide funds for estate taxes or estate settlement costs without encumbering other assets. Families with specific legacy goals, such as funding education or protecting inheritances for younger relatives, often find the predictable framework of an ILIT valuable in reaching those objectives.
An ILIT can be particularly relevant when combined with other trust arrangements like retirement plan trusts, special needs trusts, or pour-over wills that route remaining assets into a central revocable trust. Using an ILIT may reduce intergenerational disputes by setting clear rules for distributions and appointing a trustee to manage proceeds. Clients should weigh the permanence of an irrevocable arrangement against the planning benefits, coordinate with financial advisors, and ensure funding mechanisms are sustainable for future premium obligations.
Typical circumstances prompting consideration of an ILIT include concerns about estate tax exposure, the need for liquidity to pay estate administration costs, protection of proceeds for minor or vulnerable beneficiaries, and business succession planning that requires guaranteed funds. Individuals with substantial life insurance policies, owners of family businesses, or those with complex beneficiary arrangements often look to an ILIT to preserve the intended use of insurance proceeds and to align distributions with long-term family objectives. Each situation benefits from a tailored trust structure and funding plan.
Households with elevated estate values may use an ILIT to help reduce the value of the taxable estate by removing life insurance proceeds from the grantor’s ownership. When properly structured, the ILIT can provide liquidity to pay estate taxes and other settlement expenses without forcing the disposition of family businesses or other illiquid assets. This strategy is often coordinated with lifetime gifting strategies, retirement plan trusts, and other estate planning devices to manage tax exposure over time and preserve wealth for future generations.
An ILIT offers a controlled mechanism for managing life insurance proceeds when beneficiaries include minors or individuals who would benefit from structured support. The trust document can specify distribution schedules, conditions for disbursement, and protections against creditors or financial missteps. Trustees can be instructed to make distributions for education, healthcare, or living expenses, ensuring that funds serve the intended needs rather than becoming subject to immediate and potentially imprudent use by beneficiaries who are not yet prepared to manage a larger inheritance.
Business owners often use life insurance within trust arrangements to provide liquidity for buy-sell agreements, cover estate taxes that could affect business continuity, or supply funds for key person replacement costs. An ILIT owned policy can remove the proceeds from the owner’s estate while assuring that the business or co-owners have access to necessary funds. This planning helps avoid forced sales or disruptions by securing capital for transition, while keeping the legal and financial arrangements separate from personal estate assets.
The Law Offices of Robert P. Bergman serves clients in Highlands-Baywood Park, San Jose, and surrounding communities throughout San Mateo County with estate planning and trust services. We assist with drafting ILITs, coordinating funding and beneficiary designations, and integrating life insurance planning into a broader estate plan that includes documents such as a revocable living trust, pour-over will, financial power of attorney, and advance health care directive. Call our office at 408-528-2827 to discuss how an ILIT may fit into your legacy planning objectives.
Clients work with the Law Offices of Robert P. Bergman because we prioritize clear communication, practical drafting, and reliable document execution. Our firm focuses on aligning trust language with client goals, ensuring that trust funding steps are well documented, and advising on how an ILIT coordinates with other estate plan elements such as trusts, wills, and powers of attorney. We take care to explain the implications of irrevocability and to outline funding strategies so clients can make informed decisions tailored to their family circumstances.
When establishing an ILIT, attention to detail matters: assignments of policy ownership, certification of trust documents, and clear trustee instructions all affect the trust’s operation. Our practice helps clients complete these steps efficiently and offers guidance on trustee selection, succession planning, and recordkeeping practices. We also work with financial advisors and insurance providers to ensure premium payments and ownership transfers are handled in a way that supports the trust’s intended legal and tax outcomes, while maintaining clarity for beneficiaries.
Beyond drafting and funding, our firm offers ongoing support for administrative questions, trust amendments where legally possible, and coordination of beneficiary distributions after the insured’s death. We provide practical recommendations to maintain compliance with relevant tax rules and to avoid common pitfalls that can undermine trust goals. Our aim is to provide a steady point of contact for families creating ILITs and integrating those trusts into a comprehensive estate plan that addresses both immediate and long-term needs.
Our process begins with a focused consultation to review assets, family circumstances, and desired outcomes for insurance proceeds. From there, we draft a trust document that reflects distribution preferences, name trustees and successors, and specify funding mechanisms. We assist with policy transfers or trust purchases, prepare necessary assignment and certification documents, and advise on premium funding and gift tax considerations. After formation, we provide guidance on administrative practices so the ILIT remains properly maintained and works in harmony with the rest of your estate plan.
In the first stage we gather information about existing life insurance policies, estate composition, beneficiaries, and related estate planning documents. We review policy ownership, beneficiary designations, and any existing trusts or wills to identify potential conflicts. Based on this assessment, we draft an ILIT that reflects the client’s instructions, including trustee powers, distribution terms, and funding provisions. Clear drafting at this stage helps prevent misunderstandings and ensures that the ILIT can operate as intended when funding and administration follow.
We prepare the trust instrument and related documents such as assignment forms, certification of trust, and notices required for any gifts to the trust. We also advise on selecting an appropriate trustee and naming successors to ensure continuity. The trust document sets out distribution instructions, defines trustee authorities, and includes administrative provisions for tax filings and accounting. Selecting a trustee who can manage both interpersonal and financial responsibilities is an important part of making sure the ILIT functions well over time.
We communicate with insurance carriers and financial institutions to arrange transfers of ownership or to purchase policies in the trust’s name. This coordination ensures proper documentation is filed and that the trust is recognized as the owner and beneficiary as intended. We also verify that carriers accept the trust structure and confirm any procedural steps for premium payment or beneficiary claims. Working closely with insurers prevents delays and helps ensure ownership transfers do not unintentionally trigger adverse tax or policy consequences.
After the trust document is signed and ownership is established, the next step is ensuring the trust receives adequate funding to pay premiums. Funding strategies include annual gifts to the ILIT, use of Crummey notice provisions to qualify contributions for the gift tax exclusion, or setting up trust accounts to facilitate premium payments. Proper recordkeeping and timely receipts preserve the intended ownership status and support any future tax or administrative inquiries. We guide clients through the practical aspects of funding to maintain the trust’s effectiveness.
When the grantor uses annual gifts to fund premiums, it is important to document gift amounts and provide any required notices to beneficiaries. These steps help ensure contributions are treated as present interest gifts eligible for the annual exclusion. Understanding the interplay between gift tax rules and trust funding is a key part of maintaining the desired estate tax outcome. We recommend recordkeeping and periodic reviews to confirm that gift strategies remain appropriate given changes in policy premiums or family circumstances.
Trust accounts dedicated to premium payments and clear bookkeeping support consistent administration and help demonstrate the trust is functioning properly. Maintaining bank accounts in the trust’s name, preserving receipts for premium payments, and keeping copies of any insurer communications are practical steps that trustees should follow. These practices reduce the risk of misunderstandings and provide documentation that can be important for trustees fulfilling reporting obligations and for beneficiaries who seek transparency about trust activities.
When the life insurance policy pays proceeds to the ILIT, the trustee carries out the distribution and administrative tasks defined by the trust document. This may include paying estate expenses, liquidating assets to meet obligations, or distributing funds to beneficiaries according to set terms. Trustees handle tax filings and close out trust accounts as appropriate. Proper administration ensures that the grantor’s intentions are honored and that beneficiaries receive the trust benefits in an orderly way consistent with the trust instrument’s directives.
After the insured’s death, the trustee files a claim with the insurer, receives proceeds on behalf of the trust, and addresses immediate needs such as paying funeral costs or settling debts. The trustee also follows the trust’s distribution provisions and keeps beneficiaries informed. Timely claims processing, clear communication, and careful recordkeeping support efficient administration and reduce family stress. Trustees should be prepared to work with the firm to ensure required filings, tax considerations, and distribution steps are completed correctly.
Once distributions are made and administrative obligations are satisfied, trustees prepare final accountings and close trust administration where applicable. Final accounting documents clarify how proceeds were managed and distributed and provide a record for beneficiaries. Maintaining transparent records and following trust-specified reporting requirements helps avoid disputes and demonstrates that the trustee followed the grantor’s instructions. The firm assists trustees in preparing required documents and answering beneficiary questions during this concluding phase.
An irrevocable life insurance trust is a separate legal entity created to own a life insurance policy and control how its proceeds are distributed. The grantor executes the trust instrument and transfers policy ownership to the trust, or the trust purchases a new policy. Once the trust owns the policy, the proceeds generally pass to the trust on the insured’s death and are distributed by the trustee according to the trust terms, outside the usual probate process. Because the trust is irrevocable, the grantor has limited ability to change the ownership or beneficiary designations after funding. This permanence is what creates many of the intended estate planning benefits, such as potentially reducing estate tax exposure and providing clear distribution instructions. Proper funding and documentation are essential to achieve the desired legal and tax outcomes.
Common methods to fund an ILIT include making annual gifts to the trust that the trustee uses to pay premiums, or having the trust purchase the policy and maintain its own accounts for premium payments. Some grantors use gift tax exclusions and Crummey notice provisions to qualify contributions for the annual exclusion. It is important to maintain clear records of contributions, notices, and premium payments to demonstrate that the trust was the intended payor or recipient of gifts for premiums. Coordination with carriers and financial institutions is also important to ensure the trust is accepted as the owner and that premium payments are processed efficiently. Maintaining a trust bank account and keeping receipts for premium transfers reduces the likelihood of administrative issues and helps trustees manage ongoing obligations in a transparent way for beneficiaries.
By definition, an irrevocable life insurance trust is difficult to modify or revoke once properly executed and funded. That lack of flexibility is part of what gives the ILIT its legal and tax utility. While some narrow changes may be possible through methods such as decanting or trust modification petitions under certain circumstances, those routes typically involve legal processes and potentially court approval depending on the terms of the trust and applicable state law. Because changes can be limited, thoughtful initial drafting and careful selection of trust provisions and trustee succession planning are important. Clients should discuss anticipated future needs and possible contingencies in advance so the trust contains sufficient guidance for administration. If future modification is a priority, exploring alternative structures or built-in modification mechanisms with legal counsel can help balance permanence with adaptability.
An ILIT, when established and funded correctly, can remove life insurance proceeds from the insured’s taxable estate, which may reduce estate tax exposure. Gift tax rules can apply when funding the trust through gifts for premium payments; using annual exclusion amounts and proper notice procedures can help manage gift tax consequences. Trust income tax rules also apply if the trust owns other assets or accumulates income, so trustees should be prepared for any required filings and tax reporting. Because federal estate tax exemptions and state tax rules can change, periodic review is advisable to ensure the trust continues to meet objectives. Consulting with legal counsel and tax advisors helps ensure funding strategies, gift planning, and trust administration align with current rules and the client’s overall financial plan while documenting compliance for future review.
The trustee is responsible for managing the trust, accepting ownership of the policy, maintaining records, paying premiums if the trust is funding them, and distributing proceeds according to the trust’s instructions. Trustees also handle communications with beneficiaries and insurance carriers, prepare required tax filings, and follow any trust-specified reporting procedures. The role requires attention to recordkeeping, deadlines for premium payments, and clear communication to reduce confusion among beneficiaries. When selecting a trustee, consider individuals who are responsible and organized, or consider a trusted professional fiduciary to provide administrative continuity. Many clients choose a combination of a trusted family member and a professional to balance personal knowledge with administrative capability. Successor trustee provisions in the trust should be clear to ensure continuity in the event the primary trustee cannot serve.
An ILIT should be integrated with a broader estate plan including a revocable living trust, pour-over will, powers of attorney, and healthcare directives. Beneficiary designations on the life insurance policy must be coordinated to ensure the trust is the recognized owner and beneficiary if that was the grantor’s intent. Inconsistencies between policy designations and trust language can undermine the trust’s purpose, so careful review and consistent documentation are important. Additionally, an ILIT may be used alongside retirement plan trusts, special needs trusts, or business continuity arrangements, depending on the client’s goals. Coordinated planning helps avoid unintended tax consequences and ensures that distributions follow a unified plan for asset management and support of beneficiaries after the grantor’s death.
Yes, one of the benefits of an ILIT is that life insurance proceeds payable to the trust are generally not subject to probate, which can reduce delays in access to funds. Since the trust is the policy owner and beneficiary, proceeds are handled by the trustee and distributed according to the trust terms without the need for probate court oversight. This can provide faster liquidity to cover estate administration expenses, final bills, or immediate needs of surviving family members. While probate is avoided for the insurance proceeds, trustees still have administrative duties and may need to provide documentation to beneficiaries and institutions. Establishing the trust and ensuring ownership transfers and records are in order before an insured’s death helps to streamline claims processing and supports an efficient transition of funds to beneficiaries.
If premium payments are missed after an ILIT owns a policy, the policy could lapse unless corrective action is taken, which may jeopardize the intended benefits of the trust. Trustees should monitor premium schedules and maintain trust accounts or payment arrangements to avoid lapses. If a lapse occurs, options may include reinstatement if permitted by the insurer, negotiating a new arrangement, or considering alternative funding methods, but those steps depend on the policy terms and insurer rules. Proactive planning—such as ensuring sustainable funding, setting reminder systems, and coordinating with financial advisors—reduces the risk of missed premiums. Trustees should also communicate with beneficiaries about funding arrangements and any potential funding shortfalls so that contingency plans can be put in place if necessary.
An ILIT can be structured to protect proceeds for a beneficiary with special needs, but careful coordination with a special needs trust and public benefit rules is required. Placing life insurance proceeds into a trust with distribution rules that do not disqualify eligibility for public benefits can preserve both benefits and supplemental support. Often an ILIT is combined with or coordinated alongside a special needs trust to ensure funds provide enrichment without disrupting benefit eligibility. Because interactions with benefit programs are complex, it is important to plan distributions and trustee directions carefully to avoid unintended consequences. The trust instrument should clearly state permissible uses and coordinate with any special needs trust provisions, and trustees should be guided on how to make supplemental distributions that enhance quality of life while preserving access to public assistance.
Costs to establish an ILIT vary depending on complexity, the number of documents needed, and whether coordination with other trusts is required. Typical expenses include attorney fees for drafting trust documents, preparing assignment and certification paperwork, and time spent coordinating with insurance carriers and financial institutions. Ongoing administration costs may include trustee fees, tax filing fees, and expenses related to recordkeeping and distributions. The total cost depends on the level of service chosen and the trust’s complexity. While there is an upfront investment in forming and funding the ILIT, many clients find that the long-term benefits—such as probate avoidance, potential estate tax savings, and protected distributions for beneficiaries—justify the expense. We provide clear estimates during initial consultations and discuss options to manage administration costs while ensuring the trust meets planning goals.
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