An irrevocable life insurance trust (ILIT) is a planning tool many families use to control life insurance proceeds and reduce estate tax exposure while providing for beneficiaries. At the Law Offices of Robert P. Bergman, we help clients in Windsor and throughout Sonoma County understand how an ILIT can fit into a larger estate plan that may include a revocable living trust, a pour-over will, powers of attorney, and health care directives. This overview explains the purpose of an ILIT, who typically benefits from one, and how it interacts with other estate planning documents to preserve wealth and protect assets for loved ones.
Deciding whether to create an ILIT requires careful consideration of family goals, the size and type of the life insurance policy, and the potential tax implications under state and federal law. An ILIT can prevent life insurance proceeds from being included in your taxable estate and provide liquidity to pay expenses without forcing the sale of property. We discuss how an ILIT is funded, the duties of trustees, and common clauses used to maintain flexibility. This section prepares you to evaluate whether an ILIT suits your objectives and to discuss specific options with an attorney at our firm.
An ILIT can offer several important benefits for families seeking orderly transfer of life insurance proceeds and protection from estate taxation. When properly drafted and funded, life insurance proceeds held in an ILIT are kept outside the insured’s taxable estate, which may reduce estate tax liability and preserve more of the estate for intended beneficiaries. The trust structure also allows for controlled distributions, protection from creditors under certain conditions, and tailored provisions for minor or vulnerable beneficiaries. By coordinating an ILIT with retirement plan trusts, special needs or pet trusts, and pour-over wills, you can create a cohesive plan that addresses liquidity, long-term care, and legacy goals.
The Law Offices of Robert P. Bergman serves clients across Sonoma County and the broader Bay Area, offering personalized estate planning services tailored to individual family circumstances. Our approach begins with careful listening to understand your goals for asset protection, care of dependents, and long-term financial management. From revocable living trusts and pour-over wills to guardianship nominations and HIPAA authorizations, we design plans that integrate an ILIT where it makes sense. We focus on clear communication, practical drafting, and thorough coordination with financial advisors and trustees to help clients move forward with confidence.
An irrevocable life insurance trust is a special trust created to own life insurance policies for the benefit of designated beneficiaries. Once established and funded, the grantor gives up the ability to change the trust terms or reclaim the policy ownership, which is what makes the trust ‘irrevocable.’ This transfer removes the policy value from the grantor’s estate for estate tax purposes, provided the trust is properly funded and timing rules are observed. The trustee manages the policy, handles premium payments from trust assets, and follows distribution instructions after the insured’s death, which can preserve privacy and provide immediate liquidity for expenses such as taxes and final bills.
Setting up an ILIT requires attention to timing and funding mechanics. If a life insurance policy is transferred into an ILIT within three years of the insured’s death, federal rules may bring the proceeds back into the estate for tax purposes. Many clients either have the trust buy a new policy or transfer an existing policy long before these deadlines to avoid unintended tax consequences. Trustees must keep clear records, manage premium payments, and distribute proceeds according to the trust terms. Coordination with financial accounts, retirement plan trusts, and tax advisers helps ensure the trust functions as intended and supports broader estate objectives.
An ILIT is a trust vehicle created specifically to own a life insurance policy and direct the use of its proceeds. The grantor establishes the trust, names beneficiaries, and appoints a trustee to manage the trust property. Because the grantor relinquishes ownership and control over the policy, proceeds typically bypass probate and can be kept out of the taxable estate. The trust document specifies how funds are to be used, such as paying estate taxes, providing for dependents, or funding other trust arrangements like special needs trusts. Drafting must carefully address who pays premiums and how distributions are made to align with the grantor’s intentions.
Creating an ILIT involves several essential steps: drafting the trust agreement to reflect distribution goals and trustee powers; funding the trust with either a new policy purchased by the trust or an existing policy properly transferred; planning for how premiums will be paid, often via gifts to the trust under the annual gift tax exclusion; and designating contingent beneficiaries and successor trustees. Trustees should maintain accurate records, ensure timely premium payments, and follow the trust’s instructions carefully. Attention to these details and coordination with tax advisors, financial planners, and retirement plan documents helps the ILIT function effectively within a larger estate plan.
Understanding common terms helps demystify the planning process and supports clearer conversations when you meet with counsel. The following glossary entries cover essential phrases related to ILITs, including grantor, trustee, beneficiary, policy assignment, gift tax rules, and the three-year inclusion rule. Knowing these terms supports informed decision making about funding, trustee selection, and coordination with other trusts. Having a concise glossary available makes it easier to compare options and understand how an ILIT will operate alongside revocable trusts, pour-over wills, and powers of attorney that are often part of a full estate plan.
The grantor is the person who creates the trust and transfers assets into it. In ILIT planning the grantor typically establishes the trust, defines distribution instructions, and may make initial gifts to the trust to fund premium payments. Once assets or a policy are transferred to an ILIT, the grantor generally gives up the ability to change the terms of the trust or to direct the policy, which is what makes the trust irrevocable. Understanding the grantor’s role clarifies which decisions remain with the grantor prior to transfer and which responsibilities shift to the trustee after funding.
Irrevocability means that the trust terms cannot be unilaterally altered by the grantor after the trust is established and funded, and ownership of the policy passes to the trust. Because the trust owns the policy, the trustee exercises control over premium payments and policy administration. This transfer of ownership is what generally keeps the death benefit out of the grantor’s probate estate, provided applicable timing rules are observed. Understanding how ownership changes and what protections are created by the trust helps clients align the trust’s design with their asset protection and tax planning goals.
The trustee is the individual or institution charged with managing trust property and carrying out the grantor’s instructions. In an ILIT the trustee administers the insurance policy, ensures premiums are paid, keeps records, and makes distributions according to the trust terms. Because trustees have fiduciary responsibilities, selecting someone who can handle administrative duties, communicate with beneficiaries, and coordinate with advisors is important. The trust should name successor trustees to provide continuity and avoid administrative gaps that could jeopardize the trust’s purpose.
The three-year inclusion rule is a federal tax provision that can bring life insurance proceeds back into a deceased insured’s estate if the policy was transferred to the trust within three years of death. To preserve the estate-tax benefits of an ILIT, many clients either avoid transferring an existing policy close to the end of life or purchase a policy owned directly by the ILIT. Timing and documentation are key to prevent unintended estate inclusion. Consulting with counsel and tax advisors when arranging transfers or funding new policies helps ensure the trust achieves its intended tax outcomes.
There are several approaches to holding life insurance and providing estate liquidity, each with advantages and trade-offs. Options include keeping policies in the individual’s name, creating an ILIT, or using other trust structures like revocable living trusts paired with beneficiary designations. Retaining a policy individually offers flexibility but may include proceeds in the taxable estate. An ILIT removes the policy from the estate but requires relinquishment of ownership and careful funding. Working through these choices with counsel helps match a strategy to your priorities, whether minimizing taxes, preserving privacy, providing creditor protection in certain contexts, or ensuring orderly distributions to heirs.
When estate size and liquidity needs are modest, leaving a life insurance policy in the insured’s name or relying on beneficiary designations may be sufficient. For families with limited assets, the administrative and legal steps required to establish an ILIT may not provide enough advantage to justify the cost and loss of control. A straightforward beneficiary designation combined with a pour-over will that funnels assets into a revocable trust on death can meet many goals. Nevertheless, it is important to review the potential exposure to estate taxes and evaluate whether a more formal trust structure would better protect long-term objectives.
If family dynamics are uncomplicated and beneficiaries are mature and financially responsible, less restrictive arrangements may be appropriate. Simple beneficiary designations and revocable trust provisions can ensure funds pass quickly without the additional administration of an ILIT. That approach can be particularly appropriate when the goal is to provide liquidity without extensive distribution controls. However, even in straightforward families, it is wise to consider protections for unforeseen circumstances, such as creditor claims, remarriage, or the needs of minors, and to assess whether modest trust provisions could provide valuable safeguards.
A comprehensive trust-based approach, including an ILIT, typically makes sense when clients have substantial insurance proceeds, complex asset portfolios, or specific tax planning objectives. In these situations, careful drafting ensures that life insurance proceeds are used efficiently, that retirement plan trusts and other instruments work together, and that distributions reflect long-term intentions. Attention to trustee powers, successor trustee provisions, and coordination with gifting strategies can preserve family wealth and provide for future generations. For those with estate values approaching federal exemption thresholds or with unique family circumstances, a comprehensive plan provides greater control and predictability.
Comprehensive planning becomes important when beneficiaries include minors, individuals with disabilities, or others who may need restrictions and professional management of large sums. An ILIT can work alongside special needs trusts, guardianship nominations, and other provisions to provide ongoing support while preserving eligibility for benefits where appropriate. By defining distributions, appointing trustees with the right skills, and including contingency plans, families can reduce the risk of mismanagement and ensure funds are used for intended purposes. Well-drafted trusts also provide clarity and avoid disputes at a difficult time for survivors.
A comprehensive estate plan that integrates an ILIT with revocable trusts, wills, powers of attorney, and health care directives provides multiple benefits. It can protect privacy by avoiding probate, provide liquidity for taxes and final expenses, coordinate beneficiary designations with trust goals, and create protections for beneficiaries who require oversight. When trusts are aligned, the plan can reduce administrative burden for family members, minimize delays in distributions, and preserve assets for intended uses such as education, care, or charitable gifts. This coordinated approach brings clarity and stability to estate administration.
Beyond tax and liquidity advantages, a trust-centered plan promotes continuity in financial affairs and decision making. By naming trustees, successor decision makers, and guardians in advance, you provide a roadmap for managing assets and caring for dependents. That foresight can prevent disputes and enable timely actions such as paying debts, maintaining property, and funding ongoing obligations. Integrating an ILIT into this structure adds another tool to achieve the grantor’s goals while keeping life insurance proceeds aligned with the overall plan for legacy, family stability, and responsible stewardship of resources.
One major benefit of integrating an ILIT into a broader plan is more effective management of potential estate tax exposure and the provision of immediate liquidity. Life insurance proceeds held outside the taxable estate can cover taxes and final expenses without forcing the sale of business interests, real property, or other illiquid assets. This liquidity can be particularly valuable for family-owned businesses or property-rich estates, allowing heirs to maintain continuity and avoid distress sales. Thoughtful design ensures the trust structure supports these goals while respecting the grantor’s distribution preferences.
An ILIT provides a means to control how life insurance proceeds are used and distributed, which can protect beneficiaries from sudden windfalls or improper use. The trust terms can stagger distributions, require trustee oversight for major expenditures, or set aside funds for education, healthcare, or support. These provisions help ensure that proceeds are applied as intended and provide an additional layer of protection from creditor claims under the right circumstances. By specifying trustee powers and distribution standards, the grantor can balance access to funds with prudent stewardship for beneficiaries.
Timing matters when funding an ILIT. Transfers of existing policies within three years of the insured’s death can cause the proceeds to be included in the estate for tax purposes, so consider purchasing a new policy in the name of the trust or transferring an existing policy well before this period. Maintain thorough documentation of gifts to the trust and of any premium payments. Clear records support the trust’s intended tax status and help trustees administer the policy confidently. Consulting with legal and tax advisers when timing transfers or making gifts reduces the risk of unintended consequences.
An ILIT should not operate in isolation. Coordinate beneficiary designations on life insurance, retirement accounts, and pay-on-death accounts with the revocable trust, pour-over will, and any special needs or pet trusts you maintain. Consistency prevents conflicts and unintended results at the time of death. Review these designations regularly, especially after major life events such as marriage, divorce, the birth of a child, or changes in financial circumstances. Periodic reviews help ensure that the ILIT and other estate planning documents continue to reflect your wishes and that funding arrangements remain adequate.
People choose an ILIT for several practical reasons, including managing potential estate tax exposure, creating liquidity for estate settlement costs, and controlling how life insurance proceeds are used after death. An ILIT can help ensure funds are available to pay taxes, debts, and final expenses without disrupting family businesses or real estate holdings. It also supports legacy planning by directing benefits to heirs, charities, or other designated beneficiaries under specific conditions. Considering an ILIT often follows careful review of overall estate value and long-term family objectives.
Beyond tax and liquidity benefits, an ILIT provides family-focused protections that can matter in many situations. It can be tailored to protect vulnerable beneficiaries, ensure funds are used for education or healthcare, and limit access to prevent impulsive spending. For families with blended relationships or complex beneficiary dynamics, the trust structure offers clarity and enforceable instructions. Even when an ILIT is not ultimately used, exploring the option clarifies trade-offs and helps inform broader decisions about wills, revocable trusts, and beneficiary designations across financial accounts.
Common scenarios that prompt consideration of an ILIT include the need to provide liquidity for estate taxes, protect life insurance proceeds from inclusion in the taxable estate, preserve family-owned business interests by avoiding forced sales, and provide structured distributions to minor or vulnerable beneficiaries. Individuals with large policies, substantial real estate holdings, or significant retirement accounts often evaluate whether an ILIT complements other estate planning tools. Additionally, blended families and those with specific philanthropic goals may use an ILIT to direct proceeds according to a clear legacy plan.
When life insurance proceeds are large relative to the remainder of the estate, inclusion of those proceeds in the taxable estate can have a significant impact. An ILIT can remove the proceeds from estate calculations, helping preserve more assets for intended beneficiaries. This arrangement can be particularly useful when liquidity is needed to pay taxes or debts without selling assets. Properly drafting and funding the ILIT ensures the policy proceeds will be available for these purposes and are distributed in a manner consistent with the grantor’s wishes.
Families with minor children or dependents who require ongoing support often use trusts to manage how and when funds are distributed. An ILIT permits tailored distribution provisions, such as staged payments, trust-held disbursements for education or healthcare, or discretionary distributions by a trustee who understands the beneficiary’s needs. By providing these structures in advance, you reduce the likelihood of guardianship disputes and give trustees a legal framework to follow, helping ensure that funds are used for the beneficiary’s long-term benefit.
Business owners and property owners often need liquidity to cover taxes or provide successor owners with resources to maintain operations. An ILIT can supply funds without triggering a probate sale, enabling smoother transitions and preserving enterprise value. When an ILIT is integrated with buy-sell agreements, retirement plan trusts, or other succession documents, it helps ensure that heirs or business partners have the necessary resources to honor obligations and continue operations. This planning reduces pressure on beneficiaries to liquidate assets in difficult circumstances.
If you are in Windsor or nearby communities in Sonoma County, the Law Offices of Robert P. Bergman can help you evaluate whether an ILIT is appropriate for your circumstances and assist with drafting and funding the trust. We take time to understand family dynamics, financial holdings, and long-term objectives to recommend practical steps for preserving assets and providing for beneficiaries. Our team guides clients through each step of the process, from coordinating policy transfers and gifts to selecting trustees and documenting funding strategies, so you can feel confident your plan is organized and legally sound.
Choosing counsel for an ILIT is about finding a legal partner who will listen, explain options, and draft clear documents that reflect your goals. Our firm emphasizes personalized planning, practical drafting, and thorough coordination with financial and tax advisors. We prepare trust documents that address funding strategies, trustee responsibilities, and distribution instructions tailored to your family’s needs. Our goal is to produce durable documents that work within California law and provide a roadmap for trustees and beneficiaries during administration.
When you work with our office we provide detailed guidance about timing and funding mechanics to avoid unintended tax consequences, including the implications of transferring existing policies and the operation of gifting strategies to support premium payments. We help clients weigh whether an ILIT, a revocable living trust, or another arrangement best meets their objectives, and we draft companion documents such as pour-over wills, powers of attorney, and health care directives to ensure a cohesive plan. Clear communication helps clients make informed choices about their legacy.
We also assist with post-creation administration tasks that trustees often face, including recordkeeping, premium funding structures, and distribution procedures after the insured’s death. By preparing trustees and beneficiaries through thoughtful drafting and practical checklists, we reduce confusion and delay when the trust must be administered. Our focus is on durable planning that honors the grantor’s intentions while making the administration process manageable for those who must carry it out.
Our process for ILIT planning begins with an initial meeting to review your financial picture, insurance holdings, family needs, and long-term goals. We then outline options such as purchasing a policy in the trust’s name or transferring an existing policy, and explain the tax and timing consequences of each choice. Following client approval, we prepare the trust document, coordinate the transfer or application processes, and provide written instructions for trustees and for funding premium payments. Education and documentation during this process help prevent misunderstandings and ensure the trust functions as intended.
The first step focuses on assessing assets, current insurance policies, and long-term goals to design a trust that fits your needs. We review beneficiary designations, existing trusts like revocable living trusts, retirement plan trusts, and any special needs or pet trusts that could interact with the ILIT. Based on this review, we propose a funding and administration strategy that addresses timing, premium payments, trustee selection, and distribution provisions. This careful design phase sets the foundation for successful implementation and ongoing administration.
We examine your current estate planning documents, beneficiary designations, and insurance policy terms to identify conflicts or gaps. This review helps determine whether a policy should be transferred, replaced, or purchased by the trust. We also assess how the ILIT will integrate with revocable trusts, pour-over wills, and any retirement plan trusts in place. By uncovering inconsistencies early, we can recommend targeted amendments or complementary documents to ensure a coherent plan that reduces the risk of unintended outcomes.
A key element of ILIT design is deciding how premiums will be paid. Options include gifting funds to the trust under annual exclusion rules, using other trust distributions to fund premiums, or having the trust purchase a new policy. We explain the mechanics and tax implications of each approach and draft provisions that address trustee authority to handle premium payments and investments. Clear funding plans reduce the chance of lapsed policies and help maintain the intended estate-tax treatment of the trust proceeds.
Once the design is approved, we prepare the trust document and any supporting documents needed to transfer or purchase the insurance policy. This includes assignment forms, change-of-owner paperwork, or policy applications when the trust is the insured’s new owner. We also prepare instructions for trustees and beneficiaries that explain their roles and how to administer the trust after the insured’s death. Proper execution and notarization are essential to ensure the trust functions correctly and that asset transfers are legally effective.
Drafting the trust requires precise language about trustee powers, distribution standards, and successor appointments. We also prepare any assignments or forms necessary to transfer ownership of an existing policy to the trust. If the trust will purchase a new policy, we coordinate the application process and ensure the trust is properly named as owner and beneficiary. Accurate documentation at this stage prevents disputes and supports the intended tax and administrative outcomes for the trust.
After execution, the trust must be funded and records maintained to document premium payments and any gifts to the trust. We provide clients and trustees with guidance on recordkeeping practices that support the trust’s tax position and simplify future administration. This may include sample trustee logs, instructions for annual gift transfers, and recommendations for secure storage of trust documents. Good records protect the trust’s integrity and make administration smoother when the trustee must act.
The final step addresses how the trustee will administer the trust and respond when the insured dies. This includes confirming ownership of the policy at death, submitting claims, making distributions per the trust terms, and coordinating with the estate’s other components such as pour-over wills and retirement plan trusts. We prepare trustees with checklists and communication templates to help them fulfill duties efficiently and transparently for beneficiaries and advisers involved in settling the estate.
When the insured dies, the trustee must file a claim with the insurance company, collect proceeds, and distribute funds according to the trust document. Coordination with the executor of any probate estate and administrators of retirement plan trusts is often necessary to ensure smooth settlement. Trustees should follow the trust’s instructions for distributions, maintain records of payments, and consult counsel if complex tax or creditor issues arise. Clear procedures and communication reduce delays and misunderstandings among beneficiaries.
Beyond immediate claims and distributions, trustees may have ongoing duties to manage trust assets, file tax returns, and provide periodic reports to beneficiaries. Trustees should be aware of notice requirements, potential creditor claims, and tax filings that may be necessary depending on the trust’s structure. Our office can assist trustees with these responsibilities, offering practical guidance on recordkeeping, tax reporting, and resolving disputes that may arise during administration. Thoughtful trustee support helps carry out the grantor’s intentions with minimal friction.
An irrevocable life insurance trust is a trust created to own a life insurance policy and to direct how the policy proceeds are distributed after the insured person dies. Once the trust owns the policy, the grantor typically gives up legal ownership and control of the policy, and the trustee manages the policy on behalf of the beneficiaries named in the trust document. The trust terms determine when and how proceeds are paid, whether funds are used for specific purposes like education or care, and who serves as trustee and successor trustee. ILITs are commonly used to reduce estate tax exposure by keeping the insurance proceeds out of the grantor’s taxable estate, provided timing rules and funding strategies are observed. They also provide privacy and structured distributions for beneficiaries. Proper drafting and coordination with other estate documents help ensure the trust functions as intended and supports overall estate objectives.
Transferring an existing life insurance policy to an ILIT generally means the grantor no longer has ownership rights over the policy, so direct access to policy cash values or the ability to change beneficiaries typically ends. The trustee controls the policy once the transfer is complete and must follow the trust’s instructions regarding premium payments and changes to the policy. If the grantor needs ongoing access to policy values, other planning options may be more appropriate than an ILIT, which emphasizes transfer and control outside the grantor’s estate. When a trust purchases a new policy, the trust owns the policy from inception and the grantor avoids the transfer issues associated with assigning an existing policy. In both scenarios, premium payment arrangements must be made to keep the policy in force, and gift planning may be required to fund premiums without creating tax surprises. Reviewing options with counsel and financial advisers helps determine the best approach.
The three-year rule can cause the proceeds of a life insurance policy to be included in the deceased person’s taxable estate if the policy was transferred within three years of death. To maintain the intended estate-tax benefits of an ILIT, many planners recommend avoiding transfers close to the end of life or purchasing a new policy owned by the trust. Understanding and planning for this timing requirement is essential to prevent unintended tax inclusion and to preserve the trust’s benefits. Because individual circumstances vary, planning must consider the three-year rule along with other tax and gifting strategies. Documentation of transfers, consistent recordkeeping, and consultation with tax professionals help ensure that the trust’s funding and timing align with estate planning goals and compliance obligations.
Selecting a trustee for an ILIT affects administration, communication with beneficiaries, and the trust’s long-term functioning. A trustee should be prepared to handle recordkeeping, premium payments, and coordination with advisers. Some families choose a trusted individual for personal knowledge of the family, while others appoint a professional fiduciary for administrative reliability. Naming successor trustees and providing clear trustee instructions in the trust document helps ensure continuity if the primary trustee cannot serve or steps down. Trustees have fiduciary responsibilities and must act according to the trust terms. The right choice reduces risk of missed payments, unclear distributions, and conflicts among beneficiaries. Discussing practical expectations with potential trustees during the planning stage helps ensure they understand their duties and the administrative tasks required to manage the ILIT effectively.
An ILIT can provide a degree of protection from creditors or divorce for beneficiaries, depending on how the trust is drafted and relevant state law. Because proceeds are held by the trust and distributed according to its terms, direct access by creditors may be limited under certain conditions. However, protections vary widely and depend on timing, intentions behind transfers, and the applicable legal framework, so careful lawful planning is necessary to achieve creditor protection goals. For beneficiaries facing potential creditor claims or marital dissolution, an ILIT combined with other trust provisions can offer structured distributions and oversight by a trustee. These mechanisms help preserve assets for long-term needs, but no planning method provides absolute immunity in all circumstances. Legal counsel can explain realistic protections available under California law and incorporate appropriate trust provisions to support your objectives.
Premiums for a policy owned by an ILIT must be funded either from trust assets or by gifts to the trust designated for premium payments. Many grantors use annual gift tax exclusions to transfer funds to the trust and follow notice procedures so gifts qualify for exclusion. The trust should authorize the trustee to accept gifts and make premium payments, and trustees should maintain clear records of these transfers to support the trust’s tax position and administration. Maintaining premium payments is essential to prevent policy lapse and to preserve the trust’s purpose. Trustees should coordinate with advisers to ensure funding arrangements are sustainable and documented. When gifts are used to pay premiums, proper reporting and compliance with tax rules is important to avoid surprises and to protect the trust’s intended benefits.
An ILIT can reduce estate tax exposure by removing life insurance proceeds from the grantor’s taxable estate when the trust is properly funded and transfers are made outside the three-year inclusion period. Gift tax considerations arise when the grantor funds premium payments through gifts to the trust; using annual exclusion gifts and following notice procedures helps manage this aspect. Trustees may also face reporting duties related to trust investments or income, depending on the assets held by the trust. Tax planning should be coordinated with accounting or tax advisers to align the ILIT with broader tax strategies. Proper recordkeeping of gifts, premium payments, and trust transactions supports tax compliance and helps trustees respond to any inquiries during administration. Each family’s tax situation is unique, so tailored planning ensures legal and financial objectives are met.
An ILIT complements other estate planning instruments by concentrating life insurance proceeds within a trust structure while revocable living trusts, pour-over wills, and retirement plan trusts manage other assets and distribution methods. Coordination prevents conflicts between beneficiary designations and trust provisions that could create unintended outcomes. For instance, naming a revocable trust as beneficiary of certain accounts while holding the life insurance policy in an ILIT ensures distributions follow the intended pathways established by the grantor. Regular reviews after major life events are important to maintain alignment between the ILIT and other documents. Changes in family structure, financial circumstances, or law can affect how these instruments interact, so periodic updates and careful reconciliation of beneficiary designations with trust provisions are recommended to preserve coherence across the estate plan.
Transferring an existing policy into an ILIT may be appropriate if the transfer occurs well before the three-year inclusion period and if the policy terms permit assignment without adverse consequences. Transfer may affect surrender values or policy features, so a careful review is necessary. Alternatively, having the trust purchase a new policy avoids transfer timing issues and provides clearer ownership from inception, but underwriting and eligibility must be considered. Each option has trade-offs related to cost, coverage, and tax timing. Evaluating the pros and cons with counsel and insurance advisers helps determine whether transferring an existing policy or purchasing a new policy in the trust’s name best aligns with your objectives. The decision should reflect both legal considerations and the insured’s health and underwriting status.
To begin the ILIT process with our firm, schedule a consultation where we will review your financial circumstances, current policies, and family objectives. Bring copies of existing estate planning documents, insurance policies, and relevant financial statements. During the meeting we will outline options, explain timing and tax implications, and propose a plan for drafting and funding the trust that fits your needs. After you approve the approach, we prepare the trust document and supporting transfer or purchase paperwork, coordinate with insurance carriers or agents, and provide guidance for trustees and beneficiaries on administration and recordkeeping. Our goal is to make the process clear and manageable while documenting a plan that preserves value and honors your wishes for beneficiaries.
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