An irrevocable life insurance trust (ILIT) can be an effective estate planning tool for Petaluma residents seeking to control the disposition of life insurance proceeds, reduce potential estate tax exposure, and protect benefits for heirs. This page explains how an ILIT works, the decisions involved in funding and administering a trust, and the practical outcomes you can expect for your family after a policy-holder passes. We also describe how the process aligns with other estate planning documents used by California households, such as wills, powers of attorney, and health care directives, so you can make an informed choice.
Choosing to establish an ILIT involves careful planning about ownership, trustee selection, distribution terms, and interactions with retirement and other beneficiary designations. While an ILIT removes the policy proceeds from an estate for tax purposes when properly drafted and funded, it also introduces irrevocable terms that cannot easily be changed later. Because state and federal rules can affect the outcome, this guide outlines common strategies, timing considerations like the three-year rule, and ways families often coordinate an ILIT with revocable living trusts, pour-over wills, and other legacy planning measures to promote orderly transfer and financial support for beneficiaries.
An ILIT can offer significant benefits for households that want to keep life insurance proceeds out of the deceased’s taxable estate and to ensure that insurance payments are handled according to specific instructions. Beyond potential tax efficiency, ILITs can shield proceeds from creditors, create controlled distributions for beneficiaries, and provide liquidity to pay estate expenses or equalize inheritances. The structure also allows grantors to set terms for how and when funds are distributed, such as lump sums, staged payments, or educational stipends. All these features help families preserve wealth and provide for heirs while reducing friction during what can be a difficult time.
The Law Offices of Robert P. Bergman assists individuals and families in Northern California with estate planning solutions tailored to each household’s financial and family dynamics. Our approach emphasizes clear communication, practical drafting, and careful coordination with existing plans like wills, powers of attorney, and trust portfolios. When preparing an ILIT we focus on straightforward language, sound trustee selection guidance, and donor-friendly funding recommendations. We walk clients through the options for funding and administration so they understand the long-term consequences and how the trust will interact with retirement accounts, beneficiary designations, and property held in other trusts or as community property.
An irrevocable life insurance trust is a separate legal entity created to own life insurance policies and to receive policy proceeds at death. Once a grantor transfers an existing policy or causes a new policy to be issued in the name of the trust, the policy is generally removed from the grantor’s taxable estate, which can reduce estate tax exposure for larger estates. The trustee is responsible for managing the trust, receiving premiums, and distributing proceeds according to the trust terms. Because control is transferred to the trust, the grantor gives up the ability to unilaterally change trust terms, so the initial drafting and selection of trustees are important decisions.
Before creating or funding an ILIT, it is important to consider the timing of transfers and premium payments. There are rules that can affect whether proceeds are ultimately included in an estate, such as look-back periods that apply when a grantor transfers an existing policy shortly before death. Funding can be handled by gifts to the trust for payment of premiums or by transferring ownership of an existing policy. The trust instrument should specify how gifts, premium advances, loans, and policy changes are handled. A properly administered ILIT also maintains documentation of trust receipts and any Crummey notice process used to qualify gifts for the annual exclusion.
An ILIT is a trust into which life insurance policies are placed so that the proceeds will be collected and distributed by the trustee according to written instructions rather than passing through probate or direct beneficiary designations. The primary purpose of an ILIT is to remove insurance proceeds from the grantor’s probate estate and, where applicable, the taxable estate, while ensuring funds are used in a manner aligned with the grantor’s wishes. Common purposes include providing liquidity to pay taxes or debts, protecting assets from creditors, funding education for descendants, and delivering structured inheritances that protect younger beneficiaries or those with special circumstances.
Creating an ILIT typically involves drafting the trust document, naming a trustee and successor trustees, determining beneficiary classes, choosing distribution triggers, and arranging ownership or funding of a life insurance policy. The trust document will spell out how premiums are paid, whether gift tax annual exclusions will be used, how distributions are to be made, and how the trustee should invest proceeds. Administration requires careful recordkeeping, regular trustee communications, and, when applicable, sending Crummey notices to beneficiaries to preserve gift tax exclusions. The precise setup depends on personal goals, policy type, and family circumstances.
Understanding the terminology used with ILITs helps clients make informed decisions and communicate effectively with trustees, financial advisors, and family members. Common terms include grantor, trustee, beneficiary, premium, transfer of ownership, Crummey right, estate inclusion rules, and gift tax annual exclusion. Knowing what each term means clarifies who has control, who receives benefit, how funding occurs, and what steps are necessary to maintain the trust’s intended tax and asset protection advantages. Clear definitions also guide ongoing administration and reporting duties.
The grantor is the person who creates the trust and typically funds it by transferring ownership of the life insurance policy or making gifts to pay policy premiums. The grantor’s decisions early on—such as naming trustees and setting distribution terms—determine how proceeds will be handled at death. While the grantor can often choose terms that reflect a long-term intent for family protection, once an ILIT is established and funded, the grantor’s ability to unilaterally alter trust terms is limited. This permanence is part of what gives an ILIT its planning value but also requires careful consideration before establishment.
The trustee is the individual or entity appointed to manage the trust, pay premiums if directed, maintain records, and distribute proceeds according to the trust document. Trustee duties include following the grantor’s instructions, acting in beneficiaries’ best interests, and keeping transparent financial records. Trustees can be a trusted family member, a friend, a professional fiduciary, or a corporate trustee, depending on the complexity of the trust and the needs of the beneficiaries. The trust document should include successor trustees to ensure continuity if the initial trustee cannot serve.
A Crummey power refers to a temporary right given to trust beneficiaries to withdraw a gift to the trust, which enables contributions used to pay insurance premiums to qualify for the gift tax annual exclusion. The trustee typically sends a written notice to beneficiaries informing them of the right to withdraw a specified portion of the gift for a limited period. Beneficiaries rarely exercise the withdrawal right, but providing it preserves favorable tax treatment. Proper documentation of notices and the handling of any withdrawals is an important administrative requirement to maintain the intended tax benefits.
Estate inclusion rules determine whether life insurance proceeds are counted as part of a decedent’s taxable estate. Transfers of ownership or incidents of ownership retained by the grantor can cause policy proceeds to be included in the taxable estate. There are timing rules and look-back periods that can bring proceeds back into estate calculations if ownership transfers occur too close to death. Careful structuring and timing, together with clear ownership designations and trustee administration, help achieve the intended outcome of excluding proceeds from the grantor’s estate.
An ILIT serves a distinct purpose compared with revocable living trusts, wills, and beneficiary designations. While a revocable trust and will control distribution of assets owned by the grantor, an ILIT specifically holds life insurance policies to keep proceeds outside the grantor’s estate. Beneficiary designations attached directly to policies can be simple but may not provide the creditor protection or distribution controls that a trust provides. Choosing among these options depends on the family’s goals, the size and composition of the estate, and the desire for creditor protection, staged distributions, or special instructions for how proceeds should be used.
For households with modest holdings and straightforward family arrangements, keeping a life insurance policy with direct beneficiary designations may be an efficient choice. This approach minimizes administrative steps and can still achieve the main objective of providing funds to loved ones without probate delays. Direct designations work well when there are no anticipated creditor concerns, no need for staged distributions, and when heirs are mature and capable of managing immediate proceeds. Simplicity reduces ongoing trust administration duties and can be the right fit when policy proceeds are intended for immediate, uncomplicated needs.
When the primary goal is short-term liquidity to cover funeral costs or immediate household expenses, a direct beneficiary designation or payable-on-death arrangement may suffice without the ongoing administration required by an ILIT. These arrangements allow swift receipt of funds while avoiding trustee responsibilities and recordkeeping. For some families, speed and simplicity outweigh the additional protections and distribution controls an ILIT offers. Deciding between a limited approach and a trust depends on the likelihood of future creditor claims, tax exposure, and preferences for how and when beneficiaries should receive payouts.
Families with larger estates or those who face potential creditor exposure often benefit from the structure and protections an ILIT can provide when properly timed and funded. An ILIT can reduce potential estate inclusion and offer layers of protection that simple beneficiary designations cannot. Coordinating the ILIT with overall estate planning documents, retirement accounts, and property ownership helps ensure that the trust functions as intended and that beneficiaries receive funds in a manner consistent with the grantor’s broader legacy and financial management objectives.
When families want to provide structured distributions—such as staggered payments, educational allowances, or trustee-managed support for learners or vulnerable beneficiaries—an ILIT provides a mechanism to enforce such terms. The trust document allows precise instruction on when and how proceeds are disbursed, helping protect inheritances from imprudent spending or outside claims. This level of control is especially valuable for preserving wealth across generations and ensuring that proceeds serve the grantor’s intended purposes rather than being consumed quickly after death.
A comprehensive approach weaves an ILIT into the larger estate plan so that beneficiary designations, trust provisions, wills, and powers of attorney operate harmoniously. That coordination can prevent unintended outcomes, such as double counting assets or having policy proceeds revert into an estate due to retained incidents of ownership. It also ensures that life insurance serves designated purposes, like funding trusts, equalizing inheritances among beneficiaries, or providing liquidity to handle estate-related expenses without forcing the sale of family assets.
Adopting a comprehensive mindset includes periodic review of documents to reflect life changes such as marriage, divorce, the birth of children, or changes in financial circumstances. Maintaining alignment between legacy goals and the legal documents ensures the ILIT continues to meet intended objectives. Integrating tax planning, trustee selection, beneficiary needs, and funding strategies makes the ILIT an effective element of a durable plan that adapts to shifting family priorities and regulatory environments without sacrificing the protective features the trust provides.
One prominent benefit of including an ILIT in a broader estate plan is maintaining liquidity for immediate needs while preserving other estate assets. Life insurance proceeds held in a trust can cover taxes, debts, and administrative costs without forcing the sale of family property or retirement holdings. This arrangement protects long-term investments and real property, ensuring heirs can retain meaningful assets while having funds available for urgent expenses or planned distributions specified by the grantor.
An ILIT used with thoughtful instructions allows grantors to create tailored financial support structures for beneficiaries, such as periodic distributions or trustee-managed reserves for education and healthcare costs. This can protect funds from being squandered and shield them from creditors or certain legal claims. By aligning the ILIT terms with other estate documents, a grantor can ensure consistent treatment across assets and avoid conflicts between direct beneficiary payables and trust distributions, improving the prospects that beneficiaries receive the intended support over time.
Selecting the right trustee matters because that person or entity will manage policy ownership, handle premium payments if directed, and distribute proceeds under the trust’s terms. Consider a trustee who is organized, communicative, and capable of recordkeeping, and ensure successor trustees are named to avoid gaps in administration. Discuss the trustee’s potential duties early so they understand the demands, and consider whether a professional fiduciary or corporate trustee might be helpful for complex arrangements. Clear trustee instructions and accessible documentation help minimize disputes and maintain consistent trust operations over time.
An ILIT is most effective when it fits within the larger estate plan. Review beneficiary designations on retirement accounts, joint ownership arrangements, and your revocable trust or will to ensure they align with ILIT objectives. Conflicts between documents can create unintended distributions or tax consequences, so synchronize all instruments and update them after major life events. Regular reviews also let you confirm that trustees remain willing and able to serve, that funding methods remain practical, and that the trust reflects current family dynamics and financial realities.
Individuals consider an ILIT when they want to keep life insurance proceeds outside of the probate process and potentially outside of the taxable estate, while prescribing how proceeds should be used. This can be important for families that expect estate tax exposure, want to protect funds from creditors, or seek structured support for heirs. An ILIT can also provide liquidity so executors and trustees do not have to sell assets to satisfy obligations. Ultimately, people choose this tool to increase control over post-death distributions in a way that simple beneficiary designations may not provide.
Other common motivations include preserving benefits for younger or financially vulnerable beneficiaries, allocating funds for education or healthcare, and creating a reliable mechanism for spousal or charitable gifts while maintaining separate controls. In some cases, ILITs are used to equalize inheritances when business interests or real estate make direct equal distribution impractical. The permanent nature of the trust means initial drafting requires careful thought, but it also yields the long-term predictability families often seek when planning legacy transfers across generations.
Common circumstances that point to an ILIT include having a high-value estate where potential estate taxes are a concern, wanting to prevent policy proceeds from being subject to creditor claims, needing structured distributions for beneficiaries, and wanting to ensure liquidity for estate settlement costs. Other triggers may include owning a business where proceeds could be used for succession planning, being in blended-family situations where clear directions prevent disputes, and when beneficiaries would benefit from trustee-directed support rather than direct lump sum payments.
When an estate includes significant assets such as multiple properties, business interests, or retirement accounts, an ILIT helps segregate life insurance proceeds to provide liquidity and potential estate tax benefits. The trust can be used to pay taxes or debts without disrupting ownership of core assets, allowing heirs to retain businesses or property. For families with complex holdings, the ILIT’s structure provides clarity about how insurance proceeds should be used, reducing the need to liquidate strategic assets at an inopportune time to satisfy immediate obligations.
If beneficiaries face potential creditor claims, divorce, or poor financial decision-making, an ILIT can hold proceeds under trustee oversight and set distribution conditions that protect inherited funds. Trust provisions can prevent direct access by beneficiaries until certain milestones are met or allow distributions for specified needs like education or medical care. This type of arrangement provides a balance between providing financial support and preserving funds for long-term benefit, while also reducing the risk that an inheritance could be lost through outside claims or personal financial missteps.
In blended families or in cases involving business succession planning, ILITs offer a mechanism to ensure insurance proceeds serve the grantor’s specific intentions, such as providing for a surviving spouse while also preserving assets for children from a prior relationship. The trust can set priority rules, lifetime benefits, or contingent distributions that reflect the grantor’s unique family structure. Using an ILIT in these contexts can reduce disputes and clarify expectations by placing detailed directions in a binding document that operates independently of beneficiary designations that might otherwise create conflicts.
We provide local assistance to Petaluma residents exploring life insurance trust options, including evaluating whether an ILIT fits your goals, drafting the trust instrument, coordinating funding and beneficiary notices, and advising on trustee responsibilities. Our service includes reviewing your overall estate plan to ensure consistency and recommending administrative practices that protect tax and asset protection objectives. Whether you are transferring an existing policy or creating a new trust-owned policy, we guide you through the document preparation and help set up practical procedures for long-term trust administration that align with your family’s needs.
Clients value a thoughtful, client-focused approach to trust creation and administration that emphasizes communication and clarity. We take time to understand family dynamics, financial arrangements, and legacy goals so the ILIT is drafted to reflect real-life needs and predictable outcomes. Our process includes reviewing existing estate documents and beneficiary designations to prevent unintended conflicts, preparing the trust with clear trustee duties, and setting practical funding guidance so administration is manageable for trustees and protective for beneficiaries.
Because each family’s situation is unique, we provide tailored recommendations about trustee selection, funding strategies using annual exclusions, and coordination with retirement accounts and revocable trusts. We also explain administrative responsibilities such as recordkeeping and beneficiary notices, helping trustees feel prepared to carry out their duties. Our goal is to help clients implement a reliable structure that aligns with their goals for asset protection, liquidity, and controlled distributions while reducing ambiguities that can later lead to disputes.
We strive to make the process accessible and practical, offering clear documentation and follow-up steps so families know exactly how the trust will function after funding. Clients receive straightforward explanations about timing, potential tax and estate considerations, and how the ILIT coordinates with other estate planning tools including powers of attorney and health care directives. This comprehensive, practical orientation supports clients in making durable decisions for their family’s financial well-being.
Our process begins with a consultation to understand goals, family structure, and current documents. We review existing policies, beneficiary designations, and asset titling to identify the best approach for trust funding. Next, we draft a trust document tailored to your instructions, select trustee language, and describe funding mechanics and administrative duties. After execution, we assist with transferring policy ownership or with coordinating gifts for premium payments, advise on beneficiary notices, and provide templates and guidance for recordkeeping to help trustees perform their tasks effectively over time.
The first step focuses on gathering relevant information about existing life insurance policies, current estate documents, family dynamics, and financial goals. We evaluate whether an ILIT is appropriate given estate size, creditor exposure, and beneficiary needs. During this phase, we discuss trustee selection, funding options, and potential timing implications, including look-back rules that may affect estate inclusion. A clear plan is developed that identifies documents to be updated, the proposed trust structure, and next steps for drafting and execution.
We request copies of relevant documents such as life insurance policies, beneficiary designations, wills, revocable trusts, powers of attorney, and any existing trust documents. Reviewing these items allows us to identify conflicts, duplication, or unclear designations that could undermine an ILIT’s objectives. We also gather details about policy types, premium schedules, and whether the policy is new or an existing contract. This factual foundation ensures drafting reflects actual asset ownership and helps anticipate practical administration needs.
Once documents are gathered, we discuss the strategic choices that shape the ILIT, including trustee appointment, distribution terms, and whether the trust will accept gifts to fund premiums. We help clients consider potential trustee candidates and whether professional trustees may be appropriate. The planning phase culminates in a recommended approach that balances control, protection, and administrative ease, providing clients with a roadmap for trust drafting and funding steps that follow.
Following planning, we prepare the ILIT document and any related instruments required to effect transfers or funding. Clients review drafts and suggest revisions to ensure the trust language captures their wishes. Once finalized, we arrange for proper signing and notarization and advise on steps to transfer policy ownership or to make gifts for premium payments. We also prepare sample beneficiary notices and administrative checklists so trustees have the documentation and guidance needed to carry out their duties without ambiguity.
Drafting focuses on clear, precise language describing trustee powers, distribution triggers, successor appointments, and funding mechanics. We work through iterations with clients until the trust language meets their objectives and is practical for trustees to administer. Clients receive an explanation of each provision and how it will operate in common scenarios, ensuring the document is both legally sound and aligned with their legacy goals. This collaborative review helps prevent surprises later and strengthens the trust’s long-term function.
After signing, we assist with transferring ownership of the policy to the trust or with implementing the agreed funding method. This may include completing insurer forms, updating policy assignments, and establishing premium payment arrangements. We also provide guidance on notifying beneficiaries when Crummey powers are used and on maintaining written records of gifts and notices. Proper completion of these steps is essential to preserve the trust’s intended treatment and to avoid unintended estate inclusion or administrative complications.
Once the ILIT is active, trustees have continuing duties such as maintaining records, investing trust assets prudently, and making distributions under the trust terms. Periodic reviews of the trust instrument and related estate documents are recommended after major life or financial changes, including births, deaths, marriages, divorces, and substantial changes in asset values. We provide guidance on routine trustee communications, annual gift reporting considerations, and how to handle policy changes, such as exchanges or replacements, so the trust remains aligned with long-term goals and current laws.
Trustees should keep accurate records of premium payments, Crummey notices, gifts, and any trustee decisions regarding investments or distributions. These records support the trust’s administration and provide evidence of compliance with tax rules if questions arise later. We provide checklists and templates to help trustees maintain consistent documentation and to facilitate annual or event-driven reporting. Regular recordkeeping minimizes future disputes and supports clear accounting to beneficiaries when distributions occur.
A periodic review ensures the ILIT continues to reflect the grantor’s intentions and adapts to changes in family circumstances, tax law, or policy terms. Reviews may lead to adjustments in funding strategies, trustee replacements, or updates to coordinating estate documents like wills and revocable trusts. While the trust itself is irrevocable, surrounding planning elements often require updates to preserve the overall plan’s cohesiveness. We recommend scheduled reviews and make practical suggestions to keep the plan effective and aligned with evolving needs.
An irrevocable life insurance trust is a trust created to own and administer life insurance policies so that the proceeds are distributed by the trustee according to the grantor’s instructions rather than passing directly to beneficiaries. When a policy is owned by the trust, proceeds generally avoid probate and, if properly structured, may be excluded from the grantor’s taxable estate. The trust document details the trustee’s duties, beneficiary classes, distribution triggers, and funding methods, creating a framework for how policy proceeds will be managed and disbursed at death. Establishing an ILIT typically involves drafting the trust, selecting a trustee, and transferring ownership of a policy or arranging gifts to the trust to pay premiums. Because the grantor is giving up ownership, the trust is irrevocable, which provides certain protections and tax treatment but also limits the ability to unilaterally change the terms later. Proper timing and documentation are essential to achieve the intended outcomes, so planning and careful implementation are important.
Funding an ILIT usually involves making gifts to the trust that the trustee uses to pay insurance premiums, or transferring ownership of an existing policy into the trust. Gifts intended to cover premiums can qualify for the federal gift tax annual exclusion if beneficiaries are given a temporary withdrawal right through a Crummey notice. Proper notice and documentation preserve the annual exclusion, reducing the need to use lifetime gift tax exemptions. If a policy is transferred to a trust and the grantor retains incidents of ownership, proceeds may still be included in the taxable estate. In addition, transfers made shortly before death may be subject to look-back rules. Careful structuring and timing are key to obtaining the desired estate tax treatment and avoiding unintended inclusion of proceeds in the grantor’s estate.
A trustee should be someone trusted to manage administrative duties, maintain records, and follow the terms of the trust. Candidates often include a responsible family member, a close friend, or a professional fiduciary depending on the complexity of the arrangement and the anticipated duties. The trustee’s responsibilities can include receiving gifts, paying premiums, sending beneficiary notices when required, and distributing proceeds in accordance with the trust language. It is common to name successor trustees in the trust document to ensure continuity if the initial trustee cannot serve. Selecting a trustee who is organized and understands the administrative demands of trust management helps reduce potential conflicts and ensures orderly administration after the grantor’s death.
Transferring an existing life insurance policy into an ILIT is possible but requires careful consideration of timing and retained incidents of ownership. If the transfer occurs too close to the grantor’s death, estate inclusion rules may apply and the proceeds could be counted in the grantor’s taxable estate. It is important to review the policy’s ownership and beneficiary designations and to coordinate transfer steps with the insurer. When transferring an existing policy, the trustee must be prepared to receive ownership responsibilities and to administer the policy according to the trust terms. Changes may require insurer forms and potentially evidence of insurability if the policy is replaced or exchanged, so planning the transfer well in advance helps avoid unintended consequences.
Crummey notices are written communications provided to trust beneficiaries informing them of their temporary right to withdraw gifts made to the trust. This mechanism allows gifts used to fund premium payments to qualify for the federal gift tax annual exclusion by treating the contribution as a present interest. Trustees typically give beneficiaries a limited time window to exercise this withdrawal right, and beneficiaries rarely exercise it, allowing the funds to remain in trust to pay premiums and manage proceeds. Maintaining records of Crummey notices and any withdrawals is important to demonstrate compliance with tax rules. Properly implementing this procedure helps preserve tax advantages and avoids challenges that could jeopardize the intended treatment of trust funding.
When life insurance proceeds are held in an ILIT, they are generally protected from creditors of individual beneficiaries because the trust owns the proceeds and the trustee controls distributions. The degree of protection depends on how the trust is drafted and the applicable state laws, but the separation between beneficiary and trust assets can provide a layer of protection against many creditor claims directed at beneficiaries themselves. However, trustees must follow the trust’s distribution terms and applicable law. If distributions are made directly to a beneficiary, those funds may then be subject to that beneficiary’s creditors. Careful drafting and administration can help preserve protection by allowing the trustee to manage disbursements and preserve assets within the trust for intended purposes.
An ILIT usually operates alongside other estate planning documents such as a revocable living trust and will. The ILIT specifically holds life insurance policies and governs how those proceeds are administered, while a revocable trust and will address ownership and distribution of other assets. Coordinating these documents reduces conflicts, prevents unintended beneficiary designations from overriding trust objectives, and clarifies how estate liquidity and asset distributions complement one another. During the planning process, it is important to review beneficiary designations, titling of assets, and trust provisions to ensure consistent instructions across instruments. This coordination minimizes surprises and helps ensure each document functions as intended within a unified estate plan.
Because an ILIT is irrevocable, making changes after funding can be difficult, and may require the consent of beneficiaries or restructuring transactions that could have tax consequences. If circumstances change significantly, options may include amending related revocable documents, replacing a life insurance policy under certain safe harbor rules, or exploring estate planning techniques that achieve similar goals. Any change should be made with careful attention to tax rules and transfer timing to avoid undermining the trust’s intended treatment. Regular reviews before and after funding are important to anticipate life events that may require adjustments elsewhere in the estate plan. Discussing potential future scenarios at the outset helps create a durable arrangement that minimizes the need for complex post-funding changes.
Administration of an ILIT after the grantor’s death continues until the trust’s purpose is fulfilled and proceeds are distributed under the terms of the trust. The timeline varies with the trust terms: some trusts provide for immediate lump-sum distributions, while others instruct staged payments over years or conditional distributions tied to milestones. Trustees are responsible for paying any final premiums, collecting proceeds, and carrying out distributions according to the trust language. The duration of administration can be short when the trust requires quick payout, or longer when the trust is designed to support beneficiaries over many years. Trustees should keep clear records during administration to demonstrate compliance and to facilitate a smooth conclusion of trust affairs.
If you change life insurance policies, you should review the ILIT and related documents to ensure the new policy is properly owned by the trust or that funding arrangements remain intact. Replacing policies may require insurer approvals, potential evidence of insurability, and careful coordination of transfer steps to prevent unintended estate inclusion. Different policy types and underwriting outcomes can affect premium obligations and funding strategies, so updating trust documentation and administrative plans is a prudent step. When a policy change occurs, trustees and grantors should document transfers, update ownership records with the insurer, and, if necessary, adjust Crummey notice procedures to reflect new funding amounts. Keeping the trust and policies aligned reduces administrative confusion and helps preserve the ILIT’s intended benefits.
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