An irrevocable life insurance trust, often called an ILIT, is a core option for clients in Boyes Hot Springs who want organized estate planning for life insurance proceeds. The Law Offices of Robert P. Bergman provides careful guidance on how an ILIT can be used to remove life insurance benefits from an estate, create immediate liquidity to pay taxes and expenses, and set terms for distributions to beneficiaries. This page explains how an ILIT functions, what to expect during the planning process, and how local considerations in Sonoma County and California law influence trust design and administration.
This guide covers who benefits from an ILIT, the basic mechanics of transferring a policy into trust ownership, and practical issues such as trustee selection, gift tax considerations, and ongoing trust administration. It also outlines how an ILIT interacts with other estate planning documents like pour-over wills, revocable living trusts, and powers of attorney. If you are evaluating whether an ILIT fits your family circumstances, this information will help you weigh options and prepare key questions to discuss during an initial consultation with our office based in San Jose serving Boyes Hot Springs and surrounding Sonoma County communities.
An ILIT offers several practical benefits for people who own life insurance policies and want greater control over how proceeds are used and distributed. By transferring ownership of a life insurance policy into an irrevocable trust, the policy proceeds may be kept out of the decedent’s taxable estate for federal estate tax purposes, which can reduce estate tax liability in larger estates. An ILIT also creates a formal mechanism for providing liquidity to pay debts, taxes, and administrative expenses at death, and for managing distributions to heirs in an orderly manner that protects family resources and honors the grantor’s intentions over time.
The Law Offices of Robert P. Bergman, based in San Jose, serves clients throughout Sonoma County, including Boyes Hot Springs, with a focus on estate planning matters such as trusts, wills, powers of attorney, and trust administration. Our practice emphasizes clear communication, practical planning solutions, and attentive client service. We assist clients in preparing trust documents like revocable living trusts, pour-over wills, HIPAA authorizations, and specialized trust instruments such as irrevocable life insurance trusts. Our approach combines knowledge of California law with attention to family goals and efficient implementation.
An irrevocable life insurance trust is a legal arrangement created to hold a life insurance policy outside of the insured’s taxable estate. Once a policy is transferred into the trust, the trust becomes the owner and beneficiary of the policy, and the original owner no longer controls the policy. The trustee manages premium payments and trust assets according to the trust terms, while designated beneficiaries receive trust distributions after the insured’s death. Because the transfer is irrevocable, the trust terms and ownership change are permanent, which is why thoughtful planning and timely implementation are important to achieve intended tax and estate planning results.
When setting up an ILIT, clients work with counsel to draft trust language that matches their objectives, name an appropriate trustee, and determine how trust funds and insurance proceeds will be distributed. Funding the trust often requires annual gifts to the trust or transfer of an existing policy. Gift tax rules and the federal three-year lookback period for transfers to be excluded from the estate may apply, so timing and paperwork matter. Trustees must manage premium payments and maintain records to preserve the intended treatment of proceeds and to meet fiduciary responsibilities under California law.
An ILIT is an irrevocable trust created principally to own and control a life insurance policy for the benefit of named beneficiaries. The grantor transfers ownership of an existing life insurance policy or causes the trust to purchase a new policy, and the trust document sets out terms governing the use and distribution of policy proceeds. Because ownership is shifted to the trust, proceeds paid at death are generally not included in the grantor’s probate estate. Important features include naming a trustee to administer the trust, establishing distribution standards, and setting provisions to address premiums, gift contributions, and when or how beneficiaries receive distributions.
A functioning ILIT relies on several core elements: a carefully drafted trust instrument, selection of a trustee who will follow the grantor’s instructions, clear beneficiary designations, and a method for funding premium payments. The process begins with drafting trust provisions that define trustee powers and distribution rules. If transferring an existing policy, ownership forms must be updated with the insurer and any required consents obtained. Regular administration includes accepting gift contributions for premiums, maintaining trust records, filing any necessary tax forms, and coordinating distributions after the insured’s death according to the trust terms.
This glossary highlights terms you will encounter when discussing an ILIT with counsel or a trustee. Understanding these words helps you make informed decisions about trust drafting, funding, and administration. The entries below clarify concepts such as grantor, trustee, Crummey withdrawal powers, and the ways lifetime gifts interact with gift and estate tax rules. Familiarity with these terms will assist you when reviewing draft documents, discussing trustee duties, and planning the timing of transfers or premium contributions under California and federal rules.
An irrevocable trust is a trust that cannot be changed or revoked by the grantor once it is executed, except as allowed by specific trust language or by operation of applicable law. For an ILIT this permanence is intentional: transferring a life insurance policy into an irrevocable trust removes ownership from the grantor and establishes independent trust ownership and beneficiary designations. The consequences include loss of direct control by the grantor, potential estate tax benefits, and the need for careful selection of trustee powers and distribution provisions to ensure the grantor’s objectives are preserved over the lifetime of the trust.
A Crummey withdrawal right is a provision commonly used in ILITs that gives beneficiaries a limited period of time to withdraw a gifted amount before it becomes an irrevocable contribution to the trust for gift tax purposes. This mechanism is used to qualify certain gifts as present interest gifts eligible for the annual gift tax exclusion. The trust document and the notification process must be carefully structured so beneficiaries receive timely notice of their withdrawal rights and trustees maintain records of whether withdrawals were exercised, which affects the trust’s gift tax reporting and treatment.
A trustee is the person or entity appointed to manage the trust assets and carry out the terms of the trust document. For an ILIT the trustee is responsible for paying policy premiums, accepting and managing contributions, keeping accurate records, communicating with beneficiaries, and distributing proceeds after the insured’s death in accordance with the trust terms. Choosing a trustee who understands fiduciary duties, recordkeeping obligations, and trust administration procedures is important to maintain the trust’s intended tax and estate planning results and to avoid disputes among beneficiaries.
Lifetime gifts to an ILIT are often used to fund premium payments and may be subject to federal gift tax rules depending on their size. Smaller annual gifts may qualify for the annual gift tax exclusion if structured as present interest gifts, often through Crummey withdrawal rights. Larger gifts may consume part of the grantor’s lifetime gift tax exemption. Proper documentation and timely reporting are necessary to reflect the intent and tax treatment of gifts made to the trust. Tax considerations can influence the timing and amount of gifts used to support an ILIT.
When deciding how to hold life insurance, policy owners can choose to keep the policy in their personal name, name beneficiaries directly, place the policy in a revocable living trust, or transfer it into an ILIT. Keeping the policy personally may offer simplicity but can result in proceeds being included in the estate for tax purposes and exposed to probate delays. A revocable trust provides centralized estate planning but does not remove insurance proceeds from the estate while the grantor retains control. An ILIT generally provides the most effective protection from estate inclusion but involves permanent transfer and ongoing administration requirements.
For individuals whose life insurance policies have modest face amounts and whose total estate value is not likely to trigger federal estate tax concerns, a limited approach such as updating beneficiary designations or maintaining a policy in a revocable trust can be sufficient. These options reduce complexity and administrative overhead while still ensuring proceeds pass to intended recipients. In such circumstances, the cost and permanence of an ILIT may outweigh its benefits, and a focused update to existing estate planning documents may accomplish the client’s goals with less ongoing trust administration responsibility.
If the policy owner has clear, uncomplicated wishes for beneficiaries and expects that proceeds should pass immediately and outright to surviving family members, maintaining beneficiary designations on the policy or using a straightforward will or revocable trust may be an appropriate limited approach. Clients who prioritize immediate access to funds and minimal trustee involvement can often meet their objectives without an ILIT. It is still important to confirm that beneficiary forms are up to date and consistent with other estate planning documents to avoid unintended outcomes.
A comprehensive trust-based approach, which can include an ILIT among other documents, is often necessary when an estate faces potential tax exposure or when family circumstances require careful distribution planning. An integrated plan addresses how life insurance interacts with other assets, provides liquidity to cover estate settlement costs, and reduces the risk of assets being tied up in probate. For families with complex asset holdings or blended relationships, trust structures provide predictable administration procedures and can avoid delays that might otherwise burden survivors during an already difficult time.
A comprehensive plan lets a grantor define how proceeds are used to preserve family financial stability, such as providing structured distributions for minor children, protecting assets from creditors, or setting terms for long-term care support. The trust document can require the trustee to manage distributions that match beneficiaries’ needs and protect assets from imprudent spending. These arrangements are especially useful when beneficiaries require oversight, when there are concerns about creditor claims, or when preserving the financial legacy across generations is a primary objective.
A comprehensive approach aligns life insurance planning with broader estate objectives, offering coordinated outcomes across trusts, wills, and powers of attorney. By integrating an ILIT with a revocable living trust or pour-over will, clients can ensure that insurance proceeds are managed in harmony with other estate assets. This coordination simplifies administration, reduces conflicting beneficiary designations, and supports a clear plan for how trust funds will be applied toward taxes, debts, and family support after an insured’s death, minimizing surprises for survivors during settlement.
Comprehensive planning also allows for long-term administration provisions that respond to changing family dynamics, such as provisions for new children, blended families, or changing financial circumstances. Thoughtful drafting can include successor trustee selection procedures, alternate distribution rules, and mechanisms for regular review. The result is a durable plan that helps trustees act confidently and beneficiaries receive benefits according to the grantor’s wishes, while maintaining appropriate recordkeeping and tax reporting to preserve the intended estate treatment of life insurance proceeds.
One key benefit of a trust-based strategy is the potential to mitigate estate tax exposure by placing life insurance ownership in an ILIT and structuring gifts to support premium payments. This arrangement can prevent life insurance proceeds from being included in the grantor’s estate while also creating a clear legal framework to protect assets from certain creditor claims depending on circumstances and applicable law. The careful selection of trust terms and administration practices supports both tax planning goals and the protection of family resources over time.
An ILIT contributes to privacy because insurance proceeds held in trust typically pass outside of probate, avoiding the public probate process and reducing court involvement. This can accelerate access to funds needed to pay immediate expenses and help families move through settlement more efficiently. By predefining how proceeds will be administered and who will make distributions, the trust reduces ambiguity and lowers the potential for disputes among heirs, allowing trustees to follow the grantor’s instructions and provide timely financial support when it is most needed.
Begin planning well before the need to use the policy arises so transfers, gift timing, and any applicable lookback periods are managed correctly. Coordinate beneficiary designations across life insurance policies, retirement accounts, and trust documents to avoid conflicts. Early planning allows clients to make gifts to the ILIT and use annual gift exclusions strategically, reducing the chance that transfers will be pulled back into the estate. This also gives the trustee time to establish recordkeeping practices and ensures carriers update policy ownership in a timely, orderly fashion.
Ensure the ILIT is funded so premiums can be paid reliably, whether through annual gifts, loans consistent with trust provisions, or other trust assets. Establish a process for routine trust administration tasks, such as sending beneficiary notices when Crummey rights apply, tracking contributions and withdrawals, and maintaining communication with the insurance carrier. Regular reviews of the trust and related estate planning documents will help confirm that trustee powers remain appropriate and that the plan still reflects the grantor’s wishes as family or financial circumstances change.
Families and individuals consider ILITs for reasons that include removing life insurance proceeds from an estate for tax planning, ensuring immediate liquidity to cover debts and taxes, preserving privacy by avoiding probate, and directing how proceeds are used for dependents. An ILIT also provides structure for distributing proceeds over time instead of outright lump-sum distributions, which can be helpful for beneficiaries who are minors or who may need oversight. These features make an ILIT a valuable tool in estate planning when aligned with personal goals and financial circumstances.
Additional reasons to consider this service include protecting proceeds from potential creditor claims depending on the trust structure and applicable law, establishing clear management and distribution rules to reduce family disputes, and coordinating life insurance with other planning tools such as trusts for retirement accounts, special needs trusts, or pour-over wills. A well-drafted ILIT can also be adapted to accommodate lifetime gift strategies, and can help ensure that life insurance benefits serve the needs intended by the policy owner and grantor over time.
Circumstances that often lead clients to consider an ILIT include having significant life insurance proceeds that could increase estate tax exposure, owning a business or real estate that requires liquidity for transition, or wanting to protect proceeds for minor children or heirs with special needs. Other situations include concerns about creditor claims, blended family dynamics where specific distribution rules are desired, and clients who want to separate insurance benefits from probate assets to facilitate faster and more private settlement for their survivors.
An ILIT can help keep life insurance proceeds out of a taxable estate by changing ownership of the policy to the trust and following timing rules to avoid inclusion under the federal three-year lookback in applicable circumstances. For clients with larger estates or significant insurance coverage, this separation can reduce an estate’s exposure to estate tax and create funds available to pay any taxes owed without needing to liquidate other assets. Proper planning and documentation are essential to achieve the intended tax treatment.
An ILIT provides immediate access to funds at death to cover estate settlement expenses, outstanding debts, taxes, and ongoing household needs. By directing life insurance proceeds into a trust, a client can ensure that the estate has ready liquidity without burdening beneficiaries with the responsibility of selling assets quickly. This can be particularly important for estates composed of illiquid property, such as a family business or real estate, where immediate cash is needed to meet obligations during administration and transition.
Using an ILIT allows a grantor to create distribution provisions tailored to the needs of minor children or beneficiaries with ongoing care requirements. The trust can direct how proceeds are used for education, living expenses, healthcare, or long-term support while appointing a trustee to manage funds responsibly. For beneficiaries with special needs, combining an ILIT with other planning tools such as a special needs trust can help preserve eligibility for public benefits while ensuring supplemental support is provided from the insurance proceeds.
We are here to help clients in Boyes Hot Springs and across Sonoma County navigate the legal, tax, and practical considerations of establishing and maintaining an ILIT. The Law Offices of Robert P. Bergman assists with drafting trust documents, coordinating policy transfers, preparing gift notices, and advising trustees on premium payments and recordkeeping. Our staff can also integrate ILIT planning with other estate documents such as revocable living trusts, pour-over wills, guardianship nominations, financial powers of attorney, and HIPAA authorizations to create a coordinated plan tailored to each family’s needs.
Clients choose our office because we focus on practical, client-centered planning that addresses estate, tax, and family considerations together. We help clients evaluate whether an ILIT fits their overall plan, draft trust provisions that reflect specific distribution goals, and coordinate with insurance carriers and financial advisors to complete ownership transfers properly. Our goal is to provide clear guidance throughout the process and to prepare documents that trustees can administer with confidence after the grantor’s passing.
Our services include drafting ILIT instruments, preparing notices and trust records for annual gifts, coordinating beneficiary communications when needed, and advising trustees on their duties and the mechanics of premium payments. We also assist with related estate planning documents such as revocable living trusts, pour-over wills, powers of attorney, and HIPAA authorizations. By looking at the client’s full estate picture, we seek to align life insurance planning with retirement assets, property ownership, and family goals to reduce administrative friction at the time of settlement.
Local knowledge of California and Sonoma County considerations informs our approach to trust drafting and administration. We help clients anticipate issues such as tax reporting, carrier requirements for ownership changes, and timing rules that affect estate inclusion. Communication is a priority: we explain options in clear terms, help clients prepare required paperwork, and provide practical recommendations for long-term administration so that trustees and beneficiaries have a workable plan in place when it is needed most.
Our process begins with listening to your goals and reviewing existing policies and estate documents to determine whether an ILIT is appropriate. We then advise on trust structure, draft the trust document, and coordinate the transfer or purchase of a policy to place it under trust ownership. After execution, we assist with funding arrangements, beneficiary notifications, and establishing practical administration procedures so that trustees can fulfill their duties. Ongoing reviews ensure the trust continues to meet objectives as family or financial circumstances evolve.
The first stage in ILIT planning is a detailed consultation to gather information about your life insurance policies, estate assets, family situation, and planning objectives. During this meeting we review policy documents, beneficiary designations, and any existing trust or will language. Understanding the entire estate picture enables us to assess the potential benefits and limitations of an ILIT in your situation, to outline timing considerations for transfers, and to determine the most effective structure for achieving your goals while complying with California and federal rules.
We carefully examine existing insurance policies to confirm ownership, policy terms, cash values, and beneficiary designations. We also review wills, revocable living trusts, powers of attorney, and any trust-related documents to ensure consistency across your estate plan. This review helps identify any conflicts or steps needed to align beneficiary designations with trust goals, and ensures that necessary consents and forms are prepared for the insurer when changing policy ownership to the trust.
We evaluate gift tax implications and timing rules, including the federal three-year lookback for transfers that may still be included in an estate if the insured dies shortly after transfer. This assessment informs recommendations about whether to transfer an existing policy or have the trust acquire a new policy, how to structure annual gifts for premium payments, and whether Crummey withdrawal notices should be included to qualify gifts for the annual exclusion. Clear planning helps preserve the intended estate treatment for policy proceeds.
After confirming the plan, we prepare a tailored ILIT document with provisions addressing trustee powers, distribution rules, notification procedures for gifts, and any special instructions for beneficiaries. We work with you to select and name a trustee, prepare transfer paperwork for the insurance company, and coordinate actions needed to change ownership and beneficiary designations. Proper execution and carrier confirmation are essential to maintain the trust’s intended benefits and to document the transfer in a way that supports future administration and tax reporting.
The trust document sets out how the trustee should pay premiums, maintain records, give beneficiary notices when required, and distribute proceeds. We include clear trustee instructions to minimize ambiguity over discretionary powers, distribution timing, and investment or payout decisions. Well-drafted instructions support trustees in making consistent decisions aligned with the grantor’s wishes and reduce the potential for disputes among beneficiaries when the trust is administered following the insured’s death.
We handle communications with insurance carriers to effect ownership changes, update beneficiary designations, and confirm carrier requirements for transfers or new policy issuance. We also advise on funding methods for premium payments, such as annual gifts to the trust using the gift tax annual exclusion, and prepare any notices or documentation required to support tax treatment of gifts. Ensuring that carriers and trustees have appropriate instructions reduces administrative disruptions and preserves the trust’s intended treatment of proceeds.
After the ILIT is established and the policy is in trust ownership, ongoing administration is essential to preserve the plan’s benefits. This includes making or receiving annual gifts for premium payments, sending any required beneficiary notices, maintaining accurate trust records, and preparing for eventual distribution of proceeds. We provide guidance to trustees regarding fiduciary duties, documentation practices, tax reporting, and coordination with other estate administrators to ensure the trust functions smoothly when it is time to access proceeds.
Trustees should maintain a calendar for premium payment dates, document each gift received for premium funding, and keep records of any Crummey notices sent to beneficiaries. These practices support the proper tax treatment of gifts and demonstrate consistent administration. Annual reviews may also be helpful to confirm insurance carrier statements, verify the trust’s cash flow for premiums, and update any contact information for beneficiaries or successor trustees. Proper recordkeeping reduces potential misunderstandings and supports smooth trust operation over time.
Effective trustee communications help manage beneficiary expectations and clarify the timing and manner of distributions when the insured dies. Trustees should follow the trust’s distribution rules, provide required notices, and administer proceeds in a way that aligns with the grantor’s instructions. Where discretionary distributions are allowed, trustees should document decisions and consult legal counsel when uncertain. Thoughtful communication and transparent recordkeeping reduce the risk of disputes and make settlement process more predictable for beneficiaries.
An irrevocable life insurance trust is a trust created to own a life insurance policy so that the death benefits are paid to the trust rather than directly to beneficiaries or the insured’s estate. The grantor transfers ownership of the policy into the trust or causes the trust to acquire the policy. Once ownership is transferred, the trust owns the policy and the trustee manages premium payments, communications with the insurance carrier, and eventual distributions to the named beneficiaries under the trust terms. This arrangement can provide structured distributions and estate planning benefits. The trust terms determine how proceeds are handled after the insured dies, such as holding funds for minors, making staggered distributions, or directing payments for specific needs. The trustee has fiduciary duties to administer the trust according to its terms, maintain records, and handle any communications with beneficiaries. Because the transfer is irrevocable, the grantor should carefully consider trustee selection, funding mechanisms, and timing to align with tax and estate planning goals under applicable law.
Transferring an existing life insurance policy to an ILIT can be treated as a gift for federal gift tax purposes because ownership changes from the individual to the trust. Whether a gift tax return is required or whether the annual gift tax exclusion applies depends on how gifts are structured and whether beneficiaries are given present interest rights, often through Crummey withdrawal provisions. Smaller annual gifts to cover premiums may qualify for the annual exclusion if properly structured and if beneficiaries are notified of their withdrawal rights within the required timeframe. Large transfers or funding strategies that exceed the annual exclusion may use part of the grantor’s lifetime gift tax exemption, which requires filing a gift tax return to report the transfer. Timing considerations matter because transfers made within three years of death may be included in the decedent’s estate for estate tax purposes under federal rules. For these reasons, careful planning and documentation are necessary to achieve the desired tax treatment when funding or transferring a policy to an ILIT.
In most structures, the grantor should not be both the sole trustee and the sole beneficiary if the goal is to remove the policy proceeds from the taxable estate and achieve separate ownership. If the grantor retains certain powers or ownership attributes, the IRS may treat the policy as part of the grantor’s estate. Common practice is to appoint an independent or third-party trustee to exercise control over the trust assets and to avoid retaining powers that might cause estate inclusion. Selecting a trustee who will follow the trust terms while maintaining independence from the grantor’s control should be considered carefully. However, it is possible for the grantor to be a beneficiary of trust distributions in certain limited ways without defeating the trust’s treatment, but the trust must be drafted to avoid retained incidents of ownership that would pull proceeds back into the estate. Legal counsel can tailor trustee appointments and trust provisions to achieve the intended balance between allowing the grantor to benefit indirectly and ensuring that trust ownership remains separate for estate planning purposes.
An ILIT can be an effective tool to reduce the size of a federal taxable estate by removing life insurance proceeds from the grantor’s estate when the policy is owned by an irrevocable trust. In situations where the estate might face federal estate tax, placing a policy in an ILIT and observing timing requirements can prevent proceeds from being included in the estate, thereby reducing tax exposure. California does not impose a separate state estate tax currently, so the primary concern is federal estate tax rules and overall estate planning strategy under federal law. To achieve this treatment, transfers must be executed correctly and trustees must manage the trust in accordance with the terms and tax reporting rules. Transfers made within three years of death can be included in the decedent’s estate under federal rules, so early planning is often advisable. Coordination with other estate planning documents and family financial planning helps ensure that the ILIT functions as part of a broader strategy to manage tax exposure and provide liquidity for settlement needs.
If the insured person dies shortly after transferring a policy into an ILIT, federal rules may cause the policy proceeds to be included in the insured’s taxable estate if the transfer occurred within the relevant three-year lookback period. This provision can negate some estate tax advantages of the ILIT when transfers occur close to the time of death. Timing and planning are therefore important to preserve the intended estate treatment, and clients should be aware of these rules when considering transferring an existing policy into an ILIT versus having the trust purchase a new policy. When transfers occur near the time of death, alternatives and supplemental planning steps may be considered to address the potential inclusion of proceeds. Consulting counsel early and discussing timing, carrier procedures, and alternative funding mechanisms can help clients mitigate the risk of unintended estate inclusion and design a plan that reflects the family’s financial circumstances and timing constraints.
Trust proceeds are distributed according to the terms set forth in the ILIT document. The trust instrument specifies who the beneficiaries are, the conditions under which distributions may be made, and whether distributions are to be made outright or in installments. Trustees are responsible for following those instructions, which may include provisions for paying for education, healthcare, or ongoing living expenses. The trust can also establish discretionary standards for distributions to address beneficiary needs and protect funds from misuse or creditor claims where appropriate and allowed by law. Trustees must maintain records of distributions and account to beneficiaries as required by the trust and applicable fiduciary rules. In many cases trustees will coordinate with estate administrators, tax advisors, and other professionals to ensure timely payment to creditors, taxes, and administrative costs while preserving proceeds for beneficiaries. Clear drafting and trustee guidance help ensure that distributions occur smoothly and in alignment with the grantor’s objectives.
By definition, an irrevocable life insurance trust cannot be revoked or materially changed by the grantor once it is properly executed, except as allowed under specific trust provisions or by court order under limited circumstances. Some ILITs include limited powers of appointment or provisions allowing certain modifications without undermining the trust’s fundamental character, but these features must be drafted carefully to avoid creating incidents of ownership that could cause estate inclusion. After execution, changes are generally limited to actions the trust instrument explicitly permits for trustees or successor fiduciaries. In some jurisdictions and under certain conditions, courts may allow modifications to correct mistakes, address unforeseen circumstances, or respond to changes in the law, but such changes typically require legal proceedings and agreement among interested parties. For clients who anticipate possible future changes, discussing the inclusion of flexible yet appropriate mechanisms at the time of drafting can help balance permanence with practical adaptability while preserving the intended estate treatment.
Crummey powers are provisions that give beneficiaries a temporary right to withdraw gifted amounts that are contributed to the trust, usually for a limited period. These withdrawal rights create a present interest in the gift, which is necessary for the gift to qualify for the annual gift tax exclusion. By providing notice to beneficiaries of their limited withdrawal right and allowing a reasonable period to exercise it, gifts used to pay premiums can be structured to fall within the annual exclusion and avoid immediate gift tax reporting for smaller contributions. Properly executed Crummey provisions require clear notice procedures and careful recordkeeping to demonstrate that beneficiaries were afforded the withdrawal opportunity. Trustees must follow the notice requirements and document whether any withdrawals were made so that the gift treatment is clear for tax reporting and to preserve the intended benefits of the ILIT. Legal counsel can help draft notice language and procedures that align with gift tax rules while serving the trust’s funding needs.
The cost to create and maintain an ILIT varies based on the complexity of the trust terms, whether an existing policy is being transferred or a new policy is being purchased, and the level of trustee and professional involvement required. Initial drafting and coordination with an insurance carrier typically involve legal fees for document preparation, review of existing estate plans, and completion of transfer paperwork. Ongoing maintenance costs can include trustee fees, recordkeeping expenses, and costs for annual gift notices if applicable. For individual trustees, ongoing costs may be modest if administration is straightforward, while corporate trustees charge fees for service. When budgeting, clients should consider initial legal fees, potential trustee compensation, and any tax or filing costs. Coordinating with financial advisors and carriers can sometimes reduce administrative friction and cost. The overall value of an ILIT often depends on long-term benefits and how it supports estate and family goals, so comparing projected costs with the anticipated advantages helps determine whether the arrangement is appropriate for a given situation.
To start the process of creating an ILIT with our office, contact the Law Offices of Robert P. Bergman to schedule an initial consultation. During that meeting we will discuss your life insurance policies, review estate planning documents, and assess your goals and family circumstances. Bring policy statements, beneficiary forms, and any existing trust or will documents to help us provide informed recommendations. Based on this review we will recommend whether an ILIT is appropriate and outline the steps for drafting the trust, coordinating with the insurer, and establishing funding arrangements. If you decide to proceed, we will prepare the ILIT document, assist with naming a trustee, and handle the necessary communications with the insurance company to effect ownership changes or facilitate the trust’s purchase of a new policy. We will also explain annual administration tasks and work with you to establish procedures for funding premiums and sending any required notices, ensuring a smooth transition to trust ownership and long-term administration.
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