An Irrevocable Life Insurance Trust (ILIT) can be a powerful component of an estate plan for families in Burbank and throughout California. This page explains how an ILIT works, what benefits it may provide for estate tax planning and liquidity for beneficiaries, and how it coordinates with wills, revocable living trusts, and other estate documents. The Law Offices of Robert P. Bergman provides clear guidance about trust drafting, funding, and administration tailored to local law. We present practical considerations so you can make informed decisions about protecting assets, supporting loved ones, and preserving a legacy in a manner consistent with California rules and family goals.
Deciding whether an ILIT is appropriate depends on your family circumstances, types of assets, and concerns about transfer taxes and creditor protection. An ILIT is not the only tool available; options such as revocable living trusts, pour-over wills, and beneficiary designations all play a role in a complete plan. This introduction will help you understand how an ILIT fits into a broader estate planning strategy and what steps are commonly involved, including setting trustee powers, naming beneficiaries, and coordinating life insurance ownership and premium funding to ensure the trust operates as intended under California law.
An Irrevocable Life Insurance Trust can provide financial resources to beneficiaries at the time of a death and may help with estate tax planning and liquidity for paying expenses such as taxes, debts, and administration costs. By removing a life insurance policy from an individual’s taxable estate, an ILIT can reduce potential estate tax exposure and preserve more wealth for heirs. It also creates clear directions for how proceeds are held and distributed, offering privacy compared to probate and a framework for orderly asset distribution. The trust can be tailored with provisions for minors, family members with special needs, and for maintaining funds over time under trustee oversight.
The Law Offices of Robert P. Bergman serves clients with a full range of estate planning services, including ILIT drafting, trust funding, and related trust administration matters. Our attorneys work to provide clear, practical guidance about how an ILIT coordinates with wills, powers of attorney, advanced health directives, and other instruments. We focus on helping families craft plans that reflect their values and goals, addressing succession, asset protection, and the needs of beneficiaries. Throughout the process we emphasize careful documentation, communication, and compliance with California legal requirements so clients have confidence their plan will function as intended.
An Irrevocable Life Insurance Trust is a separate legal entity created to own a life insurance policy and receive its proceeds at death. Once a policy is transferred into the trust or the trust acquires a policy directly, the insured generally no longer owns the policy and typically loses the unilateral ability to change beneficiaries or revoke the trust. This transfer can remove the policy proceeds from the insured’s probate estate, and when structured correctly the proceeds are not included in the taxable estate for federal estate tax purposes. Proper timing and funding steps are essential to achieve these outcomes under applicable laws.
To be effective, an ILIT must be carefully drafted and funded. Drafting addresses trustee powers, distribution terms, and provisions for premium payments and trustee authority to manage the policy. Funding usually involves arranging for gifts to the trust to cover premiums or having the trust itself purchase a policy. In California, attention must be paid to timing and gifting rules, including any look-back periods that could affect estate inclusion. Trustees have a fiduciary role to administer the trust according to its terms, including collecting benefits, investing funds appropriately, and making distributions for beneficiaries as directed.
An ILIT is a trust designed to own life insurance and manage the proceeds for beneficiaries. When established, the grantor transfers a policy into the trust or the trust purchases a policy on the grantor’s life. Because the trust is irrevocable, the grantor typically gives up direct control over the policy and its ownership. This separation can prevent policy proceeds from being part of the insured’s probate estate, thereby providing liquidity for estate expenses and reducing estate tax exposure. The trust agreement will specify who receives income or principal, under what circumstances, and how the trustee should exercise discretion for the beneficiaries’ benefit.
Key elements of an ILIT include the trust document, trustee appointment, beneficiary designations, and provisions for funding and premium payment. The process typically begins with drafting a trust that meets legal requirements, selecting a trustee and successor trustees, and specifying distribution rules. Funding can occur by gifting cash to the trust for premium payments or by transferring an existing policy into the trust. Proper coordination with life insurance companies is required to transfer ownership and beneficiary designations. Trustees must keep records, ensure premiums are paid on time, and follow the trust terms to preserve the intended tax and estate planning benefits.
This glossary explains terms commonly encountered when discussing ILITs, including grantor, trustee, beneficiary, funding, and estate inclusion. Understanding these terms helps you follow the steps involved in establishing and administering a trust and makes it easier to evaluate whether an ILIT matches your goals. We also cover related tools such as revocable living trusts, pour-over wills, and powers of attorney, which often work together to form a comprehensive estate plan. Clear definitions help clients communicate with advisors and trustees to ensure the plan functions as intended in California.
The grantor is the person who creates the trust and transfers assets or policies into it. In the context of an ILIT, the grantor typically establishes the trust and places the life insurance policy under the trust’s ownership or arranges for the trust to be the policy owner. Once the trust is irrevocable, the grantor usually surrenders certain ownership rights over the policy, including the ability to change beneficiaries or unilaterally revoke the trust. The grantor’s intent and proper transfer documentation are critical to achieving the trust’s intended legal and tax outcomes under California and federal law.
The trustee is the individual or institution charged with managing the trust according to its terms. Trustees have fiduciary duties to act in the best interests of beneficiaries, keep accurate records, and follow instructions for premium payments, claims on the policy, and distributions. In an ILIT, the trustee may receive gifts from the grantor to pay premiums, coordinate with insurance carriers, and manage proceeds after a policy claim. Selecting a trustee who is willing to fulfill administrative responsibilities, communicate with beneficiaries, and maintain compliance with legal requirements is an important decision for a well-functioning trust.
A beneficiary is a person or entity designated to receive distributions from the trust. ILIT beneficiaries typically receive life insurance proceeds according to the trust’s terms, which can provide income, lump-sum distributions, or ongoing support depending on the document. Trustee discretion can be used to manage distribution timing, protect proceeds for minor beneficiaries, or provide ongoing care for a family member with special needs. Naming contingent beneficiaries and providing clear distribution instructions reduces ambiguity and helps ensure the grantor’s intentions are met after death.
Funding an ILIT often involves making regular gifts to the trust to cover insurance premiums or transferring an existing policy into the trust. These gifts may qualify for the annual gift tax exclusion if structured correctly and accompanied by written Crummey notices when needed. Timing matters because transfers within certain look-back periods can affect whether the policy proceeds are included in the grantor’s estate. Trustees must document gifts, premium payments, and notices to ensure compliance with tax rules and to preserve the intended estate planning advantages of the trust.
When considering an ILIT, compare it with alternative estate planning tools such as revocable living trusts, pour-over wills, and beneficiary designations. A revocable trust allows flexibility during life but does not remove assets from a taxable estate while an ILIT is designed to exclude life insurance proceeds from the grantor’s estate under appropriate circumstances. Wills control probate-based distributions but provide less privacy and can delay access to funds. Beneficiary designations on insurance and retirement accounts are simple but may not provide the management or protection an ILIT can offer for sensitive family situations.
A limited approach may suffice when life insurance holdings are modest and your overall estate is unlikely to trigger federal or state estate taxes. In such cases, keeping policies in individual ownership with clear beneficiary designations and ensuring other core documents like wills and powers of attorney are in place may meet family needs without creating an ILIT. This approach reduces administrative complexity and ongoing trustee duties while still providing immediate liquidity to beneficiaries at the time of death, which can be appropriate for many families with straightforward financial circumstances.
If retaining control and flexibility over a life insurance policy during your lifetime is a priority, a limited approach may be better suited. Revocable arrangements allow changes to beneficiaries, policy terms, or ownership, providing the grantor with the ability to adapt to changing circumstances. For people who anticipate frequent changes in family dynamics or financial goals, preserving this flexibility can outweigh the potential estate tax advantages of an ILIT. Working through options with an attorney helps determine which balance of control and estate planning benefits aligns with your long-term objectives.
A comprehensive planning approach becomes important for estates with complex asset mixes, business interests, or potential tax exposures. An ILIT can be one element of a larger strategy that includes revocable trusts, retirement plan trusts, and other instruments to manage taxes and succession. Coordinating beneficiary designations, trust provisions, and ownership transfers helps ensure that life insurance proceeds are used as intended and are protected from unintended inclusion in the taxable estate. Proper coordination reduces the risk of unintended consequences and helps preserve family wealth across generations.
Families with minor children, beneficiaries with disabilities, or unique financial needs often benefit from a coordinated plan that uses trusts to manage distributions and provide oversight. An ILIT can be tailored to provide liquidity while other trusts, such as special needs trusts or education trusts, handle ongoing support. Carefully drafted documents, trustee instructions, and complementary estate tools create a safety net that addresses immediate cash needs and long-term care without disqualifying benefits or creating unintended tax issues. Thoughtful drafting helps ensure the plan adapts to family dynamics and protects vulnerable beneficiaries.
A comprehensive approach that includes an ILIT and related estate planning documents can provide multiple benefits, including liquidity at the time of death, potential reduction of estate tax exposure, and clearer distribution procedures. Combining strategies like revocable trusts, pour-over wills, and powers of attorney ensures continuity in financial and health care decision making while addressing asset transfer objectives. This layered plan offers flexibility during life, preserves privacy by minimizing probate, and provides trustees with the authority to manage and distribute proceeds consistent with the grantor’s wishes.
A coordinated plan also helps families avoid pitfalls that arise when documents and beneficiary designations are inconsistent or outdated. When trusts and insurance arrangements are aligned, trustees can act quickly to provide for immediate needs such as funeral expenses, estate administration costs, and short-term support for dependents. At the same time, long-term management provisions can protect assets for future generations or for beneficiaries who require ongoing oversight. The result is a durable estate plan that balances access to funds with protections for designated beneficiaries and family priorities.
One of the most practical benefits of using an ILIT as part of a wider plan is access to immediate funds to cover estate settlement expenses and short-term family needs. Life insurance proceeds held in trust can be distributed quickly according to the trust terms, helping pay for funeral costs, taxes, unpaid debts, and other obligations without forcing the sale of other assets. This liquidity preserves the value of property such as a business or family home, allowing trustees to manage asset disposition in a manner that aligns with longer-term family goals and estate settlement strategies.
An ILIT can provide structured management and distribution of insurance proceeds, protecting beneficiaries from receiving a large lump sum without oversight. The trust can impose conditions, staggered distributions, or discretionary payments for education, health, and maintenance, offering a safeguard for young or vulnerable heirs. Trustees can invest proceeds prudently and follow the grantor’s wishes for long-term stewardship, helping ensure that proceeds support family needs over time. This managed approach is particularly valuable for families with special needs members or those seeking to preserve assets across multiple generations.
Verify that the life insurance policy is properly owned by the ILIT and that beneficiary designations are made to the trust rather than to individuals. Documentation should include policy change forms, trust certification or a copy of the trust as required by the insurer, and records of any premium gifts made to the trust. For policies transferred into a trust, ensure timing rules are observed to avoid estate inclusion. Clear documentation prevents disputes and supports the trustees’ ability to collect proceeds promptly and in accordance with the grantor’s intentions.
Coordinate the ILIT with your broader estate plan, including revocable living trusts, pour-over wills, powers of attorney, HIPAA authorizations, and guardianship nominations for minor children. Discuss how the ILIT interacts with beneficiary designations on retirement plans and other accounts to avoid conflicting instructions. Work with professionals to align tax, financial, and legal considerations so the trust functions as intended. Periodic reviews ensure the trust reflects current family circumstances, law changes, and the grantor’s goals, and they help prevent unintended outcomes from outdated documents or designations.
Consider an ILIT if you seek to provide liquidity for your estate, reduce potential estate tax exposure, or establish managed distributions for beneficiaries. An ILIT can remove life insurance proceeds from the taxable estate when properly structured, and it can create a mechanism for preserving assets for heirs while providing needed funds at the outset of estate settlement. Those who own valuable assets, run a business, or anticipate large estate tax exposure may find an ILIT particularly useful as part of a broader plan that includes trusts and retirement planning tools.
Additionally, an ILIT can be appropriate for families who want to protect proceeds from creditors or from beneficiaries who may not be ready to manage a large inheritance alone. The trust allows for specific distribution terms, including ongoing support, education funding, or staged distributions, which can preserve family wealth across generations. When combined with other instruments such as special needs trusts, guardianship nominations, and powers of attorney, an ILIT supports a holistic plan that addresses immediate and long-term family needs while maintaining privacy and orderly succession.
People often consider an ILIT when they have significant life insurance coverage that they want kept outside their taxable estate, when they need to provide liquidity to pay estate obligations, or when they wish to impose structured distribution terms for heirs. Those who own closely held businesses sometimes use ILITs to fund buy-sell agreements or to preserve business continuity. Families with children, disabled beneficiaries, or multiple generations often find that a trust arrangement helps translate a life insurance benefit into a purposeful financial resource that aligns with long-term family and estate objectives.
When estate tax exposure is a concern, an ILIT can provide liquidity for estate settlement and potentially reduce taxable estate amounts by separating life insurance ownership from the grantor. This structure can help pay taxes, debts, and administrative expenses without requiring the sale of business interests or family property. The ILIT’s proceeds provide immediate cash while trust provisions can manage how funds are allocated to beneficiaries over time, supporting continuity and financial stability for surviving family members in the period following a death.
Families with beneficiaries who are minors, have disabilities, or face substance abuse or creditor issues often prefer trust-based distribution controls. An ILIT can limit direct payouts and authorize trustee-managed distributions to ensure funds are used responsibly for health, education, maintenance, and support. These measures protect beneficiaries from losing funds quickly or from external claims, and they provide a framework for long-term financial oversight. Proper drafting coordinates with special needs planning and other protective trusts to preserve government benefits when necessary and provide measured support.
Business owners sometimes use life insurance trusts to fund buy-sell agreements and ensure smooth succession when a partner or owner dies. An ILIT can hold policies that provide the cash necessary to buy a departing owner’s interest, helping maintain business stability and continuity. Proper planning aligns policy proceeds with shareholder agreements and trust terms to ensure the right parties receive funds and the business can operate without disruption. Coordinating the ILIT with business documents and tax planning reduces uncertainty and helps preserve the enterprise for future owners.
The Law Offices of Robert P. Bergman provides local guidance to Burbank families on setting up and administering ILITs alongside other estate planning tools. We focus on clear explanations of how transfers, premium funding, and trustee responsibilities affect outcomes under California law. Our approach includes reviewing existing documents such as revocable living trusts, wills, powers of attorney, HIPAA authorizations, and guardianship nominations to ensure consistency. We aim to help families make informed choices that align with their financial, tax, and personal goals while providing practical steps for implementation and long-term administration.
Clients choose our firm for thorough, client-focused estate planning that addresses both legal and practical considerations. We guide clients through drafting trust documents, coordinating funding, and establishing trustee responsibilities to align with family goals. Our process includes reviewing existing policies and beneficiary designations, advising on timing to avoid unintended estate inclusion, and preparing documentation to support premium funding and trustee actions. We aim to provide clarity and steady guidance so clients understand how each component contributes to an integrated estate plan tailored to their situation.
We prioritize communication and accessibility, helping clients understand the steps involved in creating and maintaining an ILIT and related estate documents. Our team assists with coordination among financial institutions, insurance carriers, and trustees, and we prepare trust instruments that reflect desired distribution rules and protections for beneficiaries. Whether the goal is immediate liquidity, privacy, or multi-generation planning, our approach emphasizes careful drafting and practical administration to help ensure the plan functions as intended under California law.
From initial consultations to trust administration, we help clients navigate complexities like premium gifting, trust notices, and coordination with retirement plan designations. We also assist with related petitions or modifications when circumstances change, providing options for updating trust arrangements. Our goal is to support a confident transition of benefits to beneficiaries while minimizing surprises and tax exposure, and to provide clear directions for trustees to follow during administration and after a life insurance claim is made.
Our process begins with an initial consultation to understand your goals, family makeup, and existing documents. We review life insurance policies and designations, discuss trustee options, and outline funding strategies for premiums. After agreeing on objectives, we draft the trust document tailored to your needs, coordinate transfers or policy purchases, and prepare any notices or funding arrangements required for compliance. We also provide trustees with guidance on administration and recordkeeping so the trust operates smoothly. Periodic reviews and updates ensure the plan remains aligned with changes in family circumstances and law.
During the discovery phase we gather information about insurance holdings, asset values, family relationships, and any existing estate documents. This assessment helps determine whether an ILIT is appropriate and how it should be structured. We discuss the implications of transferring policies, premium funding strategies, and trustee duties. Our goal is to design a plan that addresses immediate liquidity needs, long-term management, tax considerations, and the grantor’s objectives. Clear communication at this stage reduces the risk of unexpected consequences during implementation.
We collect policy statements, trust documents, wills, powers of attorney, beneficiary designations, and financial records to understand the overall estate picture. This documentation allows us to identify conflicts, outdated designations, or policies that may require replacement or transfer. Accurate records also help calculate potential estate exposure and determine gifting strategies for premium funding. By assembling a complete file, we can advise on practical steps to align insurance ownership with trust provisions and avoid unintended inclusion in the estate.
We discuss your objectives for liquidity, distributions, and beneficiary protections, and we help evaluate trustee options including family members, trusted advisors, or corporate trustees. The selection of trustee influences administration style, recordkeeping, and ongoing management. Our conversations cover who will be best positioned to carry out the duties, how successor trustees will be appointed, and what powers they should hold. Careful consideration of trustee roles helps ensure the trust will be administered consistently with your wishes and practical needs.
In the drafting and funding phase we prepare the trust document, coordinate the transfer or acquisition of policies, and establish procedures for premium payments. The trust will specify distribution terms, trustee authorities, and funding mechanisms. If transferring an existing policy, we work with the insurer to change ownership and beneficiary designations to the trust. If the trust will purchase a new policy, we document the purchase and premium arrangements. Attention to timing and gifting formalities is essential to help achieve the intended estate planning outcomes.
We draft trust terms that reflect the grantor’s directions for distributions, trustee powers, and premium funding. If annual exclusion gifts are used to fund premiums, we prepare any required notices and trustee forms to document the gifts. The trust language addresses how proceeds will be managed and distributed and includes provisions for successor trustees and administrative procedures. Clear, precise drafting reduces ambiguity and streamlines trustee administration post-claim, helping ensure that funds are used in alignment with the grantor’s intentions.
We coordinate the change of ownership or the purchase of a new policy with the insurance company and confirm that the trust is recognized as owner and beneficiary. We also establish a method for funding premiums, whether by gifting cash to the trust or arranging other payment structures. Ensuring the insurer’s paperwork is correctly completed avoids administrative delays and supports a smooth transition of ownership. Properly documented funding steps help preserve the trust’s intended tax and estate planning benefits.
After the trust is funded and active, careful administration ensures it continues to serve its purpose. Trustees maintain records of premium payments, gifts, and communications with beneficiaries. Periodic reviews of the trust and related estate documents ensure alignment with changing family circumstances and developments in law. When the insured dies, the trustee files any necessary claims, collects proceeds, and makes distributions according to the trust terms. Ongoing attention to recordkeeping and review helps preserve the intended benefits and reduces the chance of disputes or unintended tax consequences.
Trustees are responsible for maintaining accurate records, paying premiums if applicable, and following distribution instructions contained in the trust. They must also communicate with beneficiaries as required and manage trust assets prudently. Proper trustee actions include documenting gifts used to fund premiums, keeping receipts, and preserving correspondence with insurers. These practices help demonstrate compliance with the trust terms and with any applicable tax rules, assisting both the trust’s administration and the preservation of intended estate planning outcomes.
Although an ILIT is irrevocable, the broader estate plan should be reviewed periodically to account for changes in family circumstances, asset values, or law. Other documents, such as revocable trusts, wills, and powers of attorney, can be updated to maintain an integrated plan. When life insurance needs change, options like replacing policies or adjusting funding strategies may be considered with care to avoid adverse tax consequences. Regular reviews ensure the plan remains aligned with objectives and that administrative practices continue to support smooth operation.
An Irrevocable Life Insurance Trust is a trust established to own a life insurance policy and hold proceeds for the benefit of named beneficiaries. When a policy is placed into an ILIT or the trust purchases a policy, the ownership changes so the insured no longer owns the policy directly. The trust document sets out how proceeds will be managed and distributed, which can provide liquidity for estate expenses and structured support for beneficiaries. Proper drafting and funding are essential to ensure the trust functions according to the grantor’s objectives under California and federal law. The trust operates through a trustee who administers the policy, arranges premium funding, and collects proceeds after a claim is made. Because the trust is irrevocable, the grantor typically gives up unilateral control, which can result in the policy proceeds not being included in the grantor’s taxable estate if timing and transfer requirements are met. Coordinating the trust with other estate planning documents like wills, revocable trusts, and powers of attorney helps create a cohesive plan that addresses both immediate and long-term family needs.
Transferring a policy into an ILIT generally means the grantor no longer retains ownership rights and cannot change beneficiaries or cancel the policy without trustee involvement. This reduction in control is a trade-off for the potential estate planning benefits the trust can provide. The trust’s terms will define the extent of any retained powers, and those powers should be drafted carefully to avoid unintended tax consequences. Clients should consider how much flexibility they need during life before deciding to place a policy into an irrevocable structure. Some limited powers can be preserved in ways that do not cause inclusion of the policy in the estate, but such arrangements require careful drafting and legal review. The trustee has authority to act under the trust terms, which may include paying premiums, managing the policy, and making distributions to beneficiaries. Clear documentation of ownership change and coordination with the insurer will help ensure the transfer is recognized and the trust functions as intended.
Premiums for a policy owned by an ILIT are typically paid by gifts to the trust from the grantor or other donors. These gifts can be structured to qualify for the annual gift tax exclusion when appropriate procedures, such as notice to beneficiaries, are followed. The trustee then uses the funds to pay premiums to the insurance company. Documentation of gifts and premium payments is important to support tax positions and to maintain clear records for trust administration. Alternative funding mechanisms may include leveraging other trust assets or using contributions from multiple family members. The method chosen should reflect the grantor’s financial situation and long-term objectives while observing applicable tax rules. Trustees should maintain meticulous records of gifts and payments and consult with advisors when complex funding strategies are contemplated to avoid unintended tax effects.
An ILIT can provide a level of protection for life insurance proceeds from creditors when the trust is properly drafted and the funds are held and distributed according to its terms. Because the trust owns the policy and controls disbursement, beneficiaries typically do not receive a direct, unprotected lump sum immediately upon death unless the trust directs such a distribution. The trustee’s role in managing distributions can mitigate exposure to claims, but the degree of protection depends on the terms of the trust and applicable state law regarding creditor rights and spendthrift provisions. It is important to recognize that certain claims, such as those by the grantor’s creditors before the transfer, may not be avoided by establishing an ILIT, and transfers made to defraud creditors can be set aside. Proper timing, honest intent, and careful drafting are key to providing intended protections. Consulting with counsel when structuring trust provisions and considering state creditor protection laws helps align expectations and outcomes for beneficiaries.
If a policy is transferred to an ILIT shortly before the grantor’s death, there may be look-back rules that cause the proceeds to be included in the grantor’s taxable estate. Federal rules include a three-year look-back for certain transfers of life insurance, meaning a policy transferred within that period may still be considered part of the estate for tax purposes. This timing concern can negate some intended estate tax benefits and requires careful planning to avoid unintended inclusion of proceeds. Because of these rules, it is often advisable to plan transfers well in advance and to consult about timing and funding alternatives. In some situations alternatives or supplemental planning can help address immediate needs while preserving longer-term benefits. Clear communication and timely action reduce the risk of surprises and help ensure that the chosen strategy accomplishes the grantor’s goals.
An ILIT and retirement account beneficiary designations interact in important ways, because retirement assets often pass outside of a trust unless the trust is named directly as the beneficiary. Retirement accounts such as IRAs have tax characteristics that differ from life insurance, and naming a trust as beneficiary may change required distributions and tax treatments. Coordination is necessary to ensure that retirement account designations align with the overall estate plan and with any plans for providing liquidity through an ILIT. When a trust is named as beneficiary for retirement accounts, its terms must comply with plan rules and distribution requirements to avoid adverse tax consequences. A separate retirement plan trust or tailored trust language may be necessary to preserve intended tax treatment and beneficiary protections. Working with legal and tax advisers helps ensure beneficiary designations support the broader planning objectives and that distributions are managed as intended for beneficiaries.
Selecting a trustee for an ILIT involves considering administrative ability, impartiality, and willingness to serve over potentially many years. Trustee options include a trusted family member, a close friend, a professional fiduciary, or a corporate trustee, each carrying different administrative and cost implications. The trustee should be someone who will keep accurate records, follow the trust terms, and communicate appropriately with beneficiaries. Successor trustee provisions help ensure continuity if the initial trustee becomes unable or unwilling to serve. The choice of trustee also reflects considerations such as investment judgment, familiarity with family dynamics, and comfort with administrative duties. For complex estates or where impartiality is important, a corporate or professional trustee may provide continuity and objectivity. Discussing trustee responsibilities and confirming willingness to serve before finalizing the trust helps prevent future disputes and ensures smooth administration.
Yes, an ILIT can purchase a new life insurance policy directly, with the trust named as owner and beneficiary from the outset. Purchasing through the trust can simplify ownership issues and achieve the desired estate planning outcome without requiring a later transfer. The process typically involves underwriting, trustee signing of policy documents, and establishing a funding mechanism for premiums. Carefully structured purchases help ensure the trust’s ownership is recognized and that funding arrangements comply with gifting and tax rules. When a trust purchases a new policy, the trustee must manage premium payments and maintain records of funding. The grantor or others may make gifts to the trust to cover premiums, and any required notices or documentation should be prepared. Coordinating with insurers and advisors before purchase helps confirm that the trust meets the insurer’s requirements and that the trust’s terms support the intended distributions and protections for beneficiaries.
The time required to set up and fund an ILIT varies based on factors such as whether an existing policy is being transferred, how quickly insurers process ownership changes, and whether a new policy must be underwritten. Drafting the trust document and coordinating paperwork can take several weeks, and transfers or new policy issuance may add additional time depending on underwriting and insurer procedures. Proper planning and early coordination with insurers and trustees streamline the process and reduce delays during implementation. Complex assets, multiple funding sources, or coordination with other trust documents can extend the timeline, so allowing sufficient time for review and execution is recommended. Once the trust is funded and premiums are properly arranged, ongoing administration continues through regular trustee recordkeeping and periodic reviews. Prompt action on documentation and funding helps achieve the intended estate planning outcomes within a practical timeframe.
Periodic review of your ILIT and related estate documents is recommended whenever major life changes occur, such as marriages, divorces, births, deaths, changes in health, or significant shifts in asset values. Reviews should also occur in response to relevant changes in the law or tax policy that could affect estate planning goals. Although the ILIT itself is irrevocable, other components of an estate plan can and should be updated to ensure continued coordination and that beneficiary needs are met. A routine review every few years helps confirm that funding arrangements remain appropriate, trustee selections are still suitable, and that beneficiary provisions align with current circumstances. Regular review also ensures that related documents like revocable living trusts, wills, and powers of attorney continue to support the objectives of the ILIT and the overall plan. Open communication with advisors keeps the plan current and reduces the risk of unexpected results.
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