An Irrevocable Life Insurance Trust (ILIT) can be a powerful component of a thoughtful estate plan for homeowners and families in Palo Alto and across Santa Clara County. At the Law Offices of Robert P. Bergman, we help clients understand how an ILIT can remove life insurance proceeds from a taxable estate, provide liquidity to cover estate obligations, and protect benefits for intended heirs. This guide explains the basic function of an ILIT, how it interacts with other planning documents such as wills and powers of attorney, and practical considerations for setting one up under California law.
Creating and funding an ILIT requires careful coordination with life insurance carriers, trust drafting, and ongoing administration. Many clients come to us seeking clarity about trustee duties, beneficiary designations, and the transfer of policy ownership into a trust. We describe common trust provisions, discuss funding methods and gift tax implications, and outline how an ILIT works alongside documents like a revocable living trust, pour-over will, and health care directives. Our goal is to provide practical, accessible information so you can evaluate whether an ILIT fits within your overall estate planning objectives in Palo Alto and throughout California.
An ILIT matters because it can achieve several estate planning objectives simultaneously: it can shield life insurance proceeds from estate taxation, provide immediate liquidity to pay taxes and expenses, and preserve proceeds for beneficiaries under terms you control. For business owners, homeowners with substantial equity, and families with complex needs, an ILIT can prevent unintended distribution of funds and reduce administrative burdens at the time of death. Properly drafted trust provisions and coordinated funding are necessary to obtain these advantages, and ongoing trustee administration is important to preserve the intended benefits for your heirs and successors.
The Law Offices of Robert P. Bergman serves clients in Palo Alto, San Jose, and throughout California with a focus on estate planning matters including trusts, wills, and trust administration. Our practice emphasizes clear communication, practical planning solutions, and careful document drafting tailored to each client’s circumstances. We handle trust creation, trust funding coordination with insurance providers, and trustee guidance to help families avoid common pitfalls. Through collaborative planning, we seek to protect client assets, address family dynamics, and provide a framework for orderly transfer of wealth that aligns with our clients’ goals.
An Irrevocable Life Insurance Trust is a trust designed to own and control life insurance policies on the life of the grantor or another insured person. Once the trust owns the policy and the insured passes away, proceeds are paid to the trust and distributed according to trust terms rather than through probate. This structure can remove the policy proceeds from the taxable estate, provide timely funds to beneficiaries, and allow the trustee to manage distributions over time. Setting up an ILIT involves selecting trustees, naming beneficiaries, drafting trust provisions, and transferring or purchasing the policy within trust ownership rules.
Key considerations when creating an ILIT include the timing of policy transfers, potential gift tax implications when premiums are paid to the trust, and the use of Crummey withdrawal powers where appropriate. The trust instrument should address trustee powers, payout schedules, contingencies for incapacity, and coordination with the rest of your estate plan. Funding an ILIT might involve transferring an existing policy to the trust, having the trust buy a new policy, or making gifts to the trust so it can pay premiums. Careful planning helps avoid unintended inclusion of proceeds in the estate and ensures the trust operates as intended under California law.
An ILIT is a written trust that becomes the owner and beneficiary of a life insurance policy. The grantor transfers ownership of a policy or causes the trust to purchase a policy, and once those steps are completed, the policy is no longer part of the grantor’s taxable estate. After the insured’s death, proceeds are paid to the trust and distributed according to the trust’s terms. The trust document can specify how and when beneficiaries receive funds, provide creditor protection in certain circumstances, and create mechanisms for tax-efficient estate settlement and liquidity for estate expenses.
Essential elements of an ILIT include clear trustee appointment, explicit beneficiary designations, instructions for premium payments, and provisions for trustee powers and duties. Administration processes involve ensuring the trust remains the legal owner of the policy, documenting gifts or premium payments, and maintaining accurate records. Trustees may need to present the trust instrument to the insurance company, handle beneficiary claims after the insured’s death, and distribute proceeds in accordance with the trust’s terms. Proper setup, documentation, and coordination with tax counsel can help the trust fulfill its intended role.
Understanding the terminology used in ILIT planning helps you make informed decisions. Terms such as grantor, trustee, beneficiary, ownership transfer, Crummey withdrawal, gift tax, estate tax inclusion, policy assignment, and trust funding are central to the process. This section defines common terms and explains their relevance to funding and administering an ILIT. Familiarity with these words will help you discuss options with attorneys, financial advisors, and insurance carriers to achieve coordinated planning that matches your family and tax objectives in California.
The grantor is the person who creates the trust and typically owns the assets that will fund it. In an ILIT, the grantor may transfer ownership of a life insurance policy or make gifts to the trust to pay policy premiums. The grantor’s actions in creating and funding the trust have tax consequences and can affect whether policy proceeds are included in the grantor’s taxable estate. Understanding the grantor’s role clarifies the legal steps and reporting obligations that accompany transferring policies and funding trust premiums under California and federal rules.
A Crummey withdrawal right allows beneficiaries to withdraw gifts made to the trust for a limited time, which can help qualify those gifts for the annual gift tax exclusion. Trustees typically provide notice to beneficiaries of a recent contribution, and beneficiaries have a window to exercise the withdrawal right. If beneficiaries do not act, the trust retains the contribution for premium payment or other trust purposes. Proper use of Crummey powers must be documented and administered consistently to withstand tax scrutiny and preserve the trust’s intended tax treatment.
The trustee is the individual or entity charged with managing the trust assets, including ownership and administration of the insurance policy. Trustee responsibilities include coordinating with insurance carriers, maintaining records, making premium payments when appropriate, investing trust funds prudently, and distributing proceeds according to the trust terms after the insured’s death. Selecting a trustee involves evaluating trust-management abilities, availability to handle administrative tasks, and the capacity to act impartially for beneficiaries. Trustee actions must comply with the trust document and California trust administration requirements.
Estate tax inclusion refers to whether the value of assets, including life insurance proceeds, is included in a decedent’s taxable estate for federal or state estate tax purposes. If a policy remains owned by the decedent at death or the grantor retains certain incidents of ownership, proceeds may be included in the estate. An ILIT is designed to prevent that inclusion by transferring ownership to the trust and removing incidents of ownership. Proper drafting, timely transfers, and avoidance of retained powers are key to achieving the intended exclusion from the taxable estate.
Deciding among options such as keeping a policy personally, retitling it to a trust, or using beneficiary designations requires weighing tax, control, and administrative considerations. Keeping a policy personally can be simpler but may expose proceeds to estate inclusion. Retitling a policy to an ILIT can exclude proceeds from the estate but requires trust administration and careful gift handling. Beneficiary designations offer direct distributions but may not protect proceeds from creditors or provide control over timing. Each option interacts with broader planning documents, and tailored advice helps align the choice with family and financial goals.
A limited approach to life insurance ownership may be reasonable for households with modest estates and straightforward beneficiary arrangements. If estate taxes are unlikely to apply and the beneficiaries are capable of managing a lump sum inheritance immediately, retaining a policy personally or using direct beneficiary designations might be sufficient. This route reduces administrative complexity and ongoing trust duties. Still, it is important to consider creditor exposure, potential probate timing, and whether beneficiaries require protections for minors or for managing funds over time under a trust structure.
When the primary goal is short-term liquidity for matters such as final expenses and immediate obligations, simpler arrangements can work effectively. A policy retained by the insured can still provide fast cash to beneficiaries through standard claims processes. For families where tax and creditor concerns are minimal, and where heirs are prepared to receive and manage proceeds directly, avoiding trust formation reduces paperwork and trustee responsibilities. It is important to review this choice periodically as circumstances change, such as increases in assets or changes in family dynamics that may lead to reconsidering a trust-based approach.
For individuals with significant assets or business interests, a comprehensive approach that includes an ILIT can address estate tax exposure and protect proceeds from creditor claims in certain situations. When life insurance proceeds are excluded from the taxable estate, families may preserve more value for heirs and maintain liquidity to settle taxes without selling other assets. Comprehensive planning considers interactions among trusts, retirement plan designations, and business succession needs to create a coordinated plan that reduces the risk of adverse tax consequences and enhances financial security for beneficiaries.
A trust-based structure can provide controlled distributions to beneficiaries, helpful when heirs are young, have special needs, or may face creditor or divorce risks. An ILIT lets the grantor specify how proceeds are paid, establish staggered distributions, and assign trustee discretion consistent with beneficiaries’ needs. This control reduces the chance that a large lump sum will be squandered or lost to creditors, and it gives the trustee authority to manage funds for long-term benefit. Effective drafting balances beneficiary protections with flexibility to respond to changing circumstances.
A comprehensive trust-centered approach aligns life insurance ownership with broader estate objectives, offering tax planning, creditor protection, and distribution control. By placing policies in a trust, families can direct proceeds for specific purposes such as education, business succession, or ongoing support for beneficiaries who may lack financial experience. The approach supports orderly administration at the time of death and can ease tensions among heirs by clarifying intentions and providing an independent trustee to manage distributions according to written instructions.
Additionally, comprehensive planning can reduce the administrative and emotional burden on surviving family members by ensuring there are clear processes for claims and distributions. This method also facilitates coordination with other documents like pour-over wills, successor trustee designations, and advanced health care directives to create a cohesive estate plan. While it requires careful drafting and periodic review, a trust-centered strategy offers long-term benefits in preserving family wealth and achieving objectives under California law.
One major benefit of using an ILIT is the potential to remove life insurance proceeds from the grantor’s taxable estate while still providing liquidity to pay taxes, debts, and administration costs. This liquidity prevents the need to sell illiquid assets quickly after death, which can disrupt family businesses or force sales of property at unfavorable times. When properly structured and funded, the trust ensures funds are available when needed and used according to the grantor’s instructions, helping heirs manage financial transition periods more smoothly and maintain continuity for ongoing obligations.
Another important advantage is the ability to control how proceeds are distributed, which can protect beneficiaries who are minors, have special needs, or face potential creditor claims. The trust’s terms can specify staggered payments, conditions for disbursements, and trustee directives to pay for education, health care, or other needs. This protection reduces the risk that an inheritance will be misused or lost through litigation, and it provides a mechanism for long-term stewardship that reflects the grantor’s wishes while adapting to beneficiaries’ changing circumstances.
When transferring an existing life insurance policy to an ILIT, precise timing and documentation matter. Transfers made too close to the insured’s death can lead to estate inclusion, and some carrier procedures require specific forms to retitle a policy. It is important to confirm acceptance of the trust as owner with the insurance company, complete beneficiary designation changes, and document any gifts used to pay premiums. Keeping clear records and coordinating with financial and tax professionals can prevent unintended tax consequences and help ensure the transfer succeeds as intended under California law.
An ILIT should not be designed in isolation; it must work with your revocable living trust, will, power of attorney, and healthcare directives. Make sure beneficiary designations on retirement plans and other accounts are aligned with your overall plan, and consider pour-over wills for assets that might otherwise bypass trusts. Regular reviews can address life changes such as marriage, divorce, births, or changes in assets. Communication among trustees, named agents, and family members helps reduce confusion and ensures the estate plan functions smoothly when it matters most.
Consider an ILIT if you aim to remove life insurance proceeds from your estate for tax planning, provide liquidity for estate settlement, or protect proceeds for beneficiaries who may need managed distributions. Owners of businesses, those with significant real estate holdings, and individuals with blended families often benefit from the control and protection an ILIT provides. Additionally, if you are concerned about creditor claims or want to direct how insurance proceeds are used after your death, an ILIT lets you tailor distributions and empower a trustee to manage funds in beneficiaries’ best interests.
An ILIT is also worth considering when coordinating life insurance with retirement assets and other transferable wealth. Without a trust, life insurance proceeds may be subject to estate inclusion or distributed in ways that do not reflect your long-term intentions. An ILIT helps ensure that insurance benefits are available to meet estate obligations such as taxes and debts, while preserving other assets for heirs. Regularly reviewing the trust and related planning documents ensures the structure continues to meet your goals as laws and family circumstances evolve.
Frequent circumstances that make an ILIT appropriate include business ownership, significant estate tax exposure, the desire to provide for minor or vulnerable beneficiaries, and the need for tax-efficient liquidity to settle an estate. Additionally, individuals with complex beneficiary scenarios or those seeking to isolate life insurance proceeds from probate and potential creditor claims often choose an ILIT. Each family’s situation is unique, and reviewing financial circumstances, beneficiary needs, and long-term goals helps determine whether an ILIT is an effective element of an overall estate plan under California law.
Owners of closely held businesses may use an ILIT to provide funds that facilitate business succession or buy-sell arrangements without forcing a sale of operating assets. An ILIT can provide liquidity to pay estate taxes or fund a buyout of a deceased owner’s interest, helping maintain business continuity. Careful coordination with business agreements and valuation planning is important to match the trust’s proceeds with anticipated needs. Trust terms and trustee powers should reflect the complexity of business interests and the timing required for orderly transitions.
Families with heirs who are young or lack financial experience often benefit from an ILIT because the trust structure allows controlled distributions that can support education, healthcare, and housing needs while preventing premature depletion of funds. Trust provisions can stagger distributions, require milestones for release, or permit trustee discretion for spending on specified purposes. This structured approach enables funds to be used wisely over time and reduces the risk of sudden large distributions that beneficiaries are not prepared to manage responsibly.
In blended family situations, an ILIT can help ensure insurance proceeds are distributed as intended without being affected by changes in marital status or competing claims from stepfamily members. Trust terms can clearly define beneficiary classes, preserve assets for children from prior relationships, and set conditions for distributions. Careful drafting addresses potential disputes by spelling out priorities and contingencies, helping families avoid litigation and preserve harmony by providing transparent instructions for trustees to follow when managing and distributing trust proceeds.
The Law Offices of Robert P. Bergman serves Palo Alto and the broader Santa Clara County area, providing estate planning services tailored to the needs of Silicon Valley professionals, homeowners, and business owners. Our office assists clients in evaluating whether an ILIT suits their goals, coordinates trust funding with insurance providers, and prepares clear trust documents that align with California law. We emphasize practical solutions that protect family wealth, provide liquidity, and reduce the administrative burden at the time of death so heirs can focus on what matters most.
Our firm provides attentive service focused on understanding each client’s family dynamics, financial situation, and long-term goals. We guide clients through ownership transfers, trust drafting, and coordination with insurers and financial advisors, ensuring documents work together cohesively. We take time to explain choices, risks, and administration duties so clients can make informed decisions about trusts, beneficiary designations, and premium funding strategies. Responsiveness and clear communication help clients feel confident their planning will operate as intended when it matters most.
We assist with practical aspects such as selecting appropriate trustee arrangements, drafting trust provisions for controlled distributions, and advising on how an ILIT interacts with retirement accounts, powers of attorney, and health care directives. Our approach is tailored to each client’s needs, emphasizing legal clarity and administrative ease. By coordinating with insurance carriers and maintaining thorough documentation, we help clients minimize the risk of tax inclusion or administrative complications and ensure beneficiaries receive the protections intended by the trust instrument.
Clients value our attention to detail when it comes to funding trusts and documenting premium payments, as these steps often determine whether the desired tax and control benefits are achieved. We provide ongoing guidance for trustees and successor trustees, advise on beneficiary notices for Crummey powers, and help implement amendments or trust modifications when family circumstances or laws change. Our goal is to create durable plans that align legal documents with real-life needs while offering practical support for administration and claims processing.
Our process begins with a thorough review of your financial picture, existing estate plan, and objectives for life insurance proceeds. We explain the pros and cons of an ILIT, identify suitable trustees, and draft trust documents tailored to your needs. After drafting, we coordinate with your insurance carrier to transfer or issue policies in trust ownership, prepare beneficiary notices if using Crummey powers, and provide guidance for trustees on recordkeeping and premium payments. Ongoing reviews ensure the trust remains aligned with changing circumstances and legal developments.
During the initial consultation we clarify your goals for life insurance proceeds, review existing insurance policies, and examine related documents such as revocable living trusts, wills, and powers of attorney. We assess whether an ILIT suits your objectives for tax planning, liquidity, or beneficiary protection. This stage includes discussion of trustee selection, funding methods, and potential gift tax consequences. After evaluating these elements, we recommend a tailored approach and outline next steps for drafting and funding the trust to achieve your desired outcomes.
We carefully review your current estate planning documents and any existing life insurance policies to identify interactions and potential conflicts. Examining beneficiary designations, trustee provisions, and policy ownership reveals whether retitling or new policy purchases are needed. This review helps us craft trust language that harmonizes with your broader plan and determines which administrative steps are required to transfer ownership or arrange premium funding. A clear inventory and written plan reduce the chance of oversights during implementation.
During this phase we discuss the practical implications of various trustee choices, whether an individual, multiple co-trustees, or a corporate trustee is appropriate, and how funding will occur. We explore options such as transferring a policy to the trust, having the trust purchase a new policy, or making gifts to the trust for premium payments. Understanding administrative capacity and the anticipated sources of premium funds helps us draft realistic trust provisions and ensure the trust will function effectively once in place.
Once decisions are made about trustee selection, beneficiaries, and funding, we prepare the ILIT document with provisions tailored to your needs. The trust includes trustee powers, distribution standards, procedures for notices and Crummey withdrawal rights if used, and contingencies for successor trustees. After drafting, we review the document with you and make any necessary revisions. Execution typically includes signing the trust, completing transfer forms for life insurance policies, and documenting any gifts used to fund premium payments to establish the trust’s proper tax treatment.
Drafting the trust involves specifying detailed provisions for trustee authority, payout conditions, and protective clauses for beneficiaries. Custom provisions can address education funding, hardship distributions, and provisions tailored for family-owned businesses or special needs beneficiaries. Clear definitions and administrative instructions reduce ambiguity and support reliable trustee action. We aim to create language that balances flexibility with safeguards so the trustee can respond to changing circumstances without deviating from your overall intent for the distribution and use of insurance proceeds.
After the trust is finalized, we assist with execution formalities and coordinate with insurance companies to retitle policies or issue new policies in trust ownership. This may involve completing assignment forms, beneficiary designation changes, and obtaining letters from carriers confirming the trust as owner and beneficiary. Proper documentation of transfers and premium funding is essential for demonstrating the trust’s intended tax treatment. We work with clients to ensure the carrier’s requirements are satisfied and that trust ownership is reflected accurately in the insurance records.
After an ILIT is established and funded, ongoing administration is necessary to preserve its benefits. Trustees should maintain records of premium payments, notices to beneficiaries for Crummey powers, and any distributions made from the trust. Periodic reviews of the trust are advisable to account for changes in life insurance products, tax laws, family circumstances, and financial goals. We provide trustee guidance, assist with necessary trust modifications when appropriate, and help beneficiaries understand claims processes at the time of the insured’s death.
Trustees are responsible for accurate recordkeeping, including receipts for gifts, premium payments, and notices to beneficiaries. Maintaining organized records helps preserve the intended tax treatment and supports trustee actions if questions arise. Trustees should also monitor policy performance and review carrier communications, maintain cash flow for premium payments, and coordinate with accounting or tax advisors as needed. Clear documentation and routine administration reduce the likelihood of disputes and help ensure trust provisions are followed consistently over time.
Life changes such as births, deaths, marriages, and changes in asset values may necessitate reviewing the ILIT and related planning documents. Updates may involve adjusting beneficiary designations, revising trust terms, or making amendments to reflect new goals. Periodic legal review ensures the trust remains effective under current law and continues to coordinate with other plan elements like retirement accounts and pour-over wills. Ongoing communication with advisors helps address evolving family needs and keeps the trust aligned with long-term planning objectives.
An Irrevocable Life Insurance Trust (ILIT) is a trust established to own and be the beneficiary of a life insurance policy. Once the trust owns the policy, the proceeds are paid to the trust upon the insured’s death and distributed according to the trust terms rather than through probate. This arrangement can provide control over distributions, help preserve proceeds for specific purposes, and supply liquidity to settle estate obligations. The trust instrument sets trustee powers, beneficiary designations, and distribution standards to match the grantor’s intentions. People use an ILIT for reasons including potential estate tax mitigation, creditor protection for proceeds in certain contexts, and to ensure structured distributions for heirs who may need management or oversight. Establishing an ILIT requires careful drafting, transferring ownership or arranging for the trust to purchase the policy, and documenting premium funding. Coordination with insurance companies and tax advisors is important to achieve the trust’s intended benefits under California and federal law.
Transferring a policy to an ILIT can remove the proceeds from the grantor’s taxable estate if the transfer is completed well before death and the grantor does not retain incidents of ownership. If the transfer occurs within a short period before death or if the grantor keeps powers that constitute incidents of ownership, proceeds may be included in the estate. The timing of transfers and the specific powers retained by the grantor are critical to the estate tax outcome. Properly funding the trust and documenting gifts also affect tax treatment. Gifts to the trust that are used to pay premiums may qualify for the annual gift tax exclusion if certain notice and withdrawal powers are provided and administered correctly. Working with legal and tax advisors to align transfers, notice procedures, and trustee administration can help preserve the intended estate tax benefits of an ILIT.
Crummey withdrawal powers are limited rights granted to beneficiaries that allow them to withdraw gifts made to the trust for a short period after the gift is made. The purpose is to qualify those gifts as present interest gifts eligible for the annual gift tax exclusion. Trustees typically send notices to beneficiaries informing them of the contribution and their withdrawal window, and if beneficiaries do not exercise the right, the gift remains in the trust for its intended purpose. Administratively, using Crummey powers requires consistent notice procedures and recordkeeping to demonstrate that beneficiaries had the opportunity to withdraw. Proper documentation supports the tax treatment of the gifts and helps avoid challenges. Trustees should follow trust provisions carefully and maintain accurate records of notices and any withdrawal actions taken by beneficiaries.
Choosing a trustee involves balancing administrative capability, impartiality, and continuity. Many clients select a trusted family member or friend who has the capacity to manage records and communicate with beneficiaries. Others choose a corporate trustee or bank for longevity and institutional administration, especially when the trust will hold significant assets or requires professional management. Co-trustee arrangements can combine personal knowledge with institutional resources to meet administration needs. When selecting a trustee, consider availability, willingness to serve, and the complexity of duties such as premium payments, tax filings, and beneficiary communications. Identifying successor trustees and providing clear trustee powers in the trust document reduces the chance of disputes and helps ensure smooth administration. We advise clients on trustee selection tailored to their family circumstances and the trust’s responsibilities.
An ILIT is generally irrevocable, meaning that once it is created and property is transferred into it, the grantor gives up direct control over those assets. However, some trusts include limited amendment provisions or mechanisms for trustee discretion that allow adjustments within the trust’s framework. In certain situations, trust modification through agreement of beneficiaries or by court order may be possible to address changed circumstances, but such changes can be complex and may affect the trust’s tax treatment. Because modifications can carry tax and administrative consequences, it is important to plan carefully at formation and include flexible yet protective provisions that anticipate likely future needs. Periodic legal review helps identify if a modification is advisable and ensures any changes preserve the intended estate and tax outcomes. Consultation before attempting amendments helps avoid unintended negative results.
Premiums for a policy owned by an ILIT can be funded in several ways. The grantor may make cash gifts to the trust, and the trustee uses those gifts to pay premiums. If gifts qualify for the annual gift tax exclusion through Crummey withdrawal powers, gift tax consequences may be minimized. Alternatively, the trust itself may hold assets or liquidity to cover premiums. Coordination with financial planning ensures premiums are sustainable and do not create undue burdens on the grantor or the trust. Documenting each gift and premium payment is essential for tax and administrative records. Trustees should keep clear receipts and communications showing the use of funds for premiums and any notices provided to beneficiaries. Proper documentation supports the trust’s intended treatment and helps the trustee manage the trust responsibly over time.
When the insured dies, the insurance carrier pays the policy proceeds to the ILIT, which then must be administered according to the trust terms. The trustee files the necessary claims with the carrier, obtains certification of death benefits, and distributes funds following the trust’s distribution instructions. The trust may provide immediate lump sum distributions, staggered payments, or trustee-directed expenditures for beneficiaries’ needs such as education or healthcare. Trustees should maintain thorough records of the claim, receipts, and distributions. Depending on the trust terms, trustees may also coordinate with tax advisors to address any estate tax filings or related obligations. Clear trustee authority and documentation streamline the claims process and ensure funds are used as the grantor intended for the benefit of named beneficiaries.
An ILIT coordinates with a revocable living trust and pour-over will as part of a comprehensive estate plan by addressing the ownership and distribution of life insurance proceeds outside of probate and the revocable trust. The revocable trust typically manages assets the grantor controls during life and succeeds property at death, while the ILIT specifically owns and manages life insurance proceeds. A pour-over will can act as a backstop for assets not otherwise transferred to trusts, ensuring coherence among planning documents. Coordinated drafting ensures beneficiary designations and trust provisions do not conflict and that trustee instructions align with your overall intentions. Regularly reviewing all documents together helps prevent unintended overlaps or gaps. Working with counsel to harmonize these instruments creates a unified plan that reflects your priorities for asset distribution and family protection.
Funding an ILIT often involves making gifts to the trust so it can pay premiums. Gifts to the trust may be subject to gift tax rules unless they qualify for the annual gift tax exclusion. Using Crummey withdrawal rights can allow gifts to be treated as present interest gifts, qualifying for the exclusion, provided the notices and procedures are properly administered and documented. Understanding these mechanics is important to avoid unexpected tax liabilities. There may also be lifetime annual exclusion or unified credit planning considerations, depending on the amounts involved and your overall estate plan. Consulting with tax advisors when funding an ILIT is advisable to ensure gifts are structured appropriately and records are maintained to support intended tax treatment.
To begin setting up an ILIT, contact the Law Offices of Robert P. Bergman for an initial consultation where we review your existing estate plan, life insurance policies, and objectives. We will discuss the potential benefits of an ILIT, funding options, trustee choices, and how an ILIT would interact with your revocable living trust, will, and powers of attorney. We provide a clear overview of steps, timelines, and documentation needed to move forward. After deciding to proceed, we prepare the trust document tailored to your needs, coordinate policy retitling or purchase, and assist with notices and recordkeeping for premium funding. We also guide trustees on administration tasks and offer periodic reviews to ensure the trust remains effective as your circumstances evolve. Call our office to schedule a meeting and begin the planning process.
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