An Irrevocable Life Insurance Trust (ILIT) can be a powerful tool for managing life insurance proceeds outside of an individual’s taxable estate and ensuring those proceeds are used according to the grantor’s wishes. In Alpaugh and Tulare County, residents rely on careful planning to provide liquidity for heirs, pay estate obligations, and maintain privacy. This guide explains what an ILIT does, how it is funded, and the roles of grantors, trustees, and beneficiaries. It is intended to help families evaluate whether an ILIT fits their broader estate plan while highlighting considerations unique to California law and local practice.
Deciding whether an ILIT is appropriate involves examining family circumstances, the size of the estate, and long-range goals for distributing assets. An ILIT can protect life insurance proceeds from probate, permit controlled distributions to beneficiaries, and help with estate tax planning when sized and funded properly. Californians who own high-value policies or who want to preserve proceeds for future generations often include an ILIT alongside wills and revocable living trusts. This section lays out the practical steps you may encounter when creating and funding an ILIT and what to expect from the planning process.
An ILIT matters because it can preserve the full value of a life insurance policy for intended beneficiaries by removing the policy from the grantor’s probate estate. This can translate to faster access to funds for funeral expenses, debts, taxes, or ongoing family support. For business owners, the ILIT can help ensure continuity and provide liquidity to cover business obligations. The trust structure also gives the grantor a way to specify how proceeds are used, manage distributions for younger beneficiaries, and reduce estate administration costs and delays. Local considerations such as property values and family dynamics make tailored planning important.
The Law Offices of Robert P. Bergman serves clients across California with a focus on practical, client-centered estate planning solutions. Our team works closely with clients to design plans that reflect family goals, minimize unnecessary tax exposure where possible, and create straightforward administration paths for trustees and loved ones. We emphasize clear communication and careful document drafting to help prevent disputes and ease transitions after a client’s passing. Our approach considers local probate procedures and the realities families face in Tulare County and neighboring communities.
An ILIT is a trust that holds and owns a life insurance policy for the benefit of designated beneficiaries. Once established and properly funded, the policy proceeds are paid to the trust at death and distributed according to the trust terms. Because the trust owns the policy and the grantor relinquishes ownership rights, proceeds generally are not included in the grantor’s probate estate. The creation of the trust, proper assignment of the policy, and careful handling of gifts for premium payments are important to achieve the intended results and to comply with tax and gift law requirements.
Funding an ILIT typically involves transferring an existing policy into the trust or having the trust purchase a new policy. If an existing policy is transferred, there is a transfer-for-value and gift timing consideration that can affect the estate inclusion rules; a waiting period may be necessary before proceeds escape inclusion in the estate. Annual gifts to the trust to cover premiums often use present interest gifts accompanied by limited withdrawal rights for beneficiaries, commonly referred to in planning discussions as a mechanism to access annual gift tax exclusions. Clear recordkeeping and trustee communication make administration smoother.
An Irrevocable Life Insurance Trust is a legal arrangement in which the grantor transfers ownership of a life insurance policy to a trust that cannot be changed or revoked by the grantor. The trustee manages the policy and the trust’s assets, and beneficiaries receive proceeds according to the trust terms after the insured’s death. Because ownership has been transferred, the policy proceeds are typically not considered part of the grantor’s probate estate, which can simplify administration and shield the proceeds from certain estate obligations. The trust terms can include conditions on distribution, timing, and custodial arrangements to protect long-term goals.
Creating an ILIT involves drafting the trust document, naming a trustee and successor trustees, transferring or acquiring a life insurance policy in the trust name, and establishing a plan for premium funding. The grantor typically makes annual gifts to the trust to cover premiums, and the trust is structured so those gifts qualify for annual gift tax exclusions through limited withdrawal rights for beneficiaries. Trustees must keep accurate records of gifts and premiums, notify beneficiaries as required, and manage distributions in accordance with the trust. Proper timing and adherence to tax rules are essential to achieve the intended estate planning outcome.
Understanding specialized terms helps families make informed decisions about ILIT planning. Common concepts include funding mechanics, transfer timing, gift tax rules, trustee duties, and beneficiary rights. Knowing these terms reduces confusion during implementation and administration, and it supports clearer communication between the grantor, trustee, and legal counsel. This section defines the most frequently encountered terms in ILIT planning to demystify the process and help clients follow the steps necessary to create a durable, functional trust that meets their goals under California law.
An Irrevocable Life Insurance Trust is a trust that owns life insurance policies for the benefit of named beneficiaries. The grantor transfers policy ownership into the trust and typically gives the trustee authority to manage the policy and distribute proceeds at death. Once created and funded properly, the ILIT can help keep life insurance proceeds out of the grantor’s probate estate and provide directed distributions according to the trust terms. The trust’s irrevocable nature means that the grantor generally cannot change the trust terms or reclaim financial control over the policy once the transfer is complete.
The trustee administers the ILIT, maintains records of premium payments and gifts, manages policy changes permitted by the trust terms, and distributes proceeds according to instructions in the trust document. Trustees also handle notices to beneficiaries when gifts are made, ensure compliance with any limited withdrawal rights that allow gifts to qualify for gift tax exclusions, and coordinate with accountants or financial institutions for tax reporting and investment management. Trustee selection should consider reliability, willingness to keep detailed records, and ability to follow the grantor’s distribution instructions faithfully.
Funding an ILIT often requires annual gifts to the trust to cover premium costs, and those gifts can qualify for the annual gift tax exclusion when structured appropriately. For transfers of existing policies, there is a potential three-year lookback that can cause policy proceeds to be included in the grantor’s estate if the grantor dies within three years of transferring ownership. Careful timing and documentation of gifts, along with understanding applicable exclusion amounts, are important to minimize unintended tax consequences. Working through these details helps protect the intended tax and estate planning results.
Beneficiary designations within an ILIT are governed by the trust document rather than by beneficiary forms on the insurance company alone. The trust specifies who receives distributions, when they are distributed, and any conditions attached to those distributions. Terms can be tailored to provide staged distributions for younger beneficiaries, continued support for a surviving spouse, or restrictions to preserve assets for longer-term goals. Careful drafting ensures that the trustee has clear authority to carry out the grantor’s wishes while avoiding ambiguity that might lead to disputes during administration.
When evaluating options for life insurance and estate planning, clients may weigh a limited approach, such as updating beneficiary designations, against establishing an ILIT or integrating life insurance into a larger trust-based estate plan. Limited actions can be faster and less expensive up front but may not provide the same degree of control or protection from probate and estate administration. Comprehensive planning requires more time and coordination with financial and tax advisors, but it often produces more predictable outcomes for distributing insurance proceeds and protecting family interests across multiple scenarios and changing life circumstances.
A limited approach may be appropriate when a life insurance policy’s proceeds are modest and the beneficiaries are straightforward, such as a sole surviving spouse or adult child who is expected to manage a small inheritance without the need for staged distributions. If the primary goal is to ensure money is available quickly to cover final expenses or small debts, updating beneficiary designations and confirming that beneficiary designations align with broader estate documents can be a practical, cost-effective choice. In such cases, minimizing complexity can reduce administrative burdens and legal costs.
If the estate is unlikely to trigger federal or state estate tax liabilities and the grantor has limited concerns about creditor claims or the need for controlled distributions, a simple approach may make sense. Single-step solutions such as beneficiary updates often avoid the initial expense and administrative duties associated with trusts. That approach can be acceptable when the policy is intended to provide immediate liquidity and when family dynamics and financial circumstances do not suggest the need for more structured control over how proceeds are used after the grantor’s death.
A comprehensive trust approach, including an ILIT, is often warranted when families want life insurance proceeds to bypass probate and be managed according to the grantor’s specific instructions. Probate avoidance can reduce delays and public exposure of asset distribution, and it can provide immediate liquidity to cover estate settlement costs, taxes, and business obligations. When beneficiaries include minors or beneficiaries with special needs, a trust structure allows the grantor to set conditions for distributions that protect assets and ensure long-term support consistent with the grantor’s wishes.
Comprehensive planning is appropriate when an estate has potential tax exposure, creditor risks, blended family dynamics, or when there is a desire to control distributions across multiple generations. An ILIT can be part of a larger plan to manage estate tax exposure and to place conditions on how and when beneficiaries access funds. For business owners or those with complex asset holdings, integrating an ILIT with other trust documents helps coordinate liquidity needs and succession planning, which can reduce administrative friction and preserve value for intended heirs.
Including an ILIT in a comprehensive estate plan provides a structured mechanism to keep insurance proceeds out of probate, offer privacy for distribution terms, and create a vehicle for managed distributions over time. These features can protect beneficiaries from receiving a lump sum they are unprepared to manage and can preserve assets for long-term family goals. The trust vehicle also creates a framework for trustees to follow, helping reduce disputes and ensuring that the grantor’s directions are carried out consistently with the plan’s objectives and the governing law.
In addition to probate avoidance and directed distributions, a comprehensive approach can align life insurance planning with other estate planning tools like revocable living trusts, powers of attorney, and advance health care directives, creating a cohesive plan for incapacity and death. Coordinated documents limit conflicting instructions and make administration more efficient. Working through these interrelated components during the planning stage offers families clarity on how assets will be managed and distributed and helps trustees and heirs fulfill the grantor’s intentions with minimal friction.
An ILIT helps preserve liquidity by directing life insurance proceeds to an entity designed to distribute funds quickly to cover funeral costs, debts, taxes, and ongoing family needs without the delays often associated with probate. This immediate access can ease financial pressures on survivors and prevent the forced sale of other estate assets to meet obligations. By specifying administration procedures and allowable distributions, an ILIT can also reduce disputes among heirs and streamline the trustee’s decision-making, which lowers the cumulative time and expense of settling an estate.
A tailored ILIT allows grantors to set parameters for how and when beneficiaries receive funds, which can be valuable for families with minors, beneficiaries with special needs, or those who may face challenges managing large sums. Trust terms can provide staged distributions tied to ages or milestones, discretionary distributions for education or health needs, and safeguards that limit creditor access. Such structure helps ensure that proceeds support intended purposes over time, helping the grantor’s legacy deliver lasting benefit rather than a short-term windfall.
Before transferring a life insurance policy into an ILIT, confirm the timing implications and any lookback rules that could affect estate inclusion. If a policy is transferred shortly before death, there may be a period during which proceeds remain part of the grantor’s estate. Discuss whether purchasing a new policy in the trust’s name or transferring an existing policy is the better route. Proper timing and careful documentation of the transfer and premium funding are essential to secure the intended benefits for beneficiaries while complying with tax rules.
Ensure beneficiary designations, revocable living trusts, wills, and powers of attorney reflect the ILIT and the overall estate plan. Mismatched instructions can create conflicts and undermine planning goals. A coordinated review helps align distribution timing, tax planning, and responsibilities for incapacity planning. Keep contact information for trustees, insurers, and advisors up to date, and review your plan periodically to account for changes in family circumstances, laws, and financial goals so the ILIT continues to serve its intended purpose.
Residents often consider an ILIT to protect life insurance proceeds from probate and to ensure that funds are distributed privately and according to set terms. Families who own real estate, operate small businesses, or have assets that could be difficult to liquidate may use an ILIT to provide immediate liquidity at death. Those concerned about how beneficiaries might manage a lump sum or interested in directing funds for specific needs such as education, a generational legacy, or charitable intentions also find an ILIT valuable. Local probate timelines and estate settlement practices make planning ahead beneficial.
Other common motivations include safeguarding proceeds from creditor claims, coordinating life insurance with broader estate planning tools, and creating protections for vulnerable beneficiaries. For families with blended households, an ILIT can help ensure that life insurance proceeds are available for a surviving spouse while protecting intended distributions for children from a prior relationship. Thoughtful drafting and coordination with financial planning help maximize the ILIT’s benefits while adapting to California law and Tulare County procedures.
An ILIT commonly serves clients who have significant life insurance holdings, complex family arrangements, or concerns about probate delays and estate liquidity. It is also useful where beneficiaries might need structured support over time, or where the grantor wants to reduce the likelihood that proceeds will be used to settle creditor claims or mismanaged. Business owners who need to provide liquidity for succession planning and families seeking to coordinate benefits with trusts for incapacity planning find an ILIT to be an effective tool within a broader estate plan.
When a life insurance policy has substantial face value relative to the rest of the estate, placing the policy into an ILIT can help ensure that proceeds are not included in the grantor’s probate estate and that they are available to satisfy liquidity needs without delay. This is especially relevant when beneficiaries will depend on life insurance proceeds to maintain lifestyle, pay taxes, or run a family business. Properly funding and documenting the ILIT helps preserve value and align distributions with the grantor’s goals.
Families with young beneficiaries, adult beneficiaries with limited financial experience, or beneficiaries who receive public benefits often benefit from the structured distributions an ILIT can provide. Trust terms can set staged distributions, direct funds toward education or housing, and preserve eligibility for means-tested benefits in some situations by controlling the timing and conditions of distributions. Thoughtful drafting enables the grantor to balance immediate needs with long-term protection for vulnerable family members.
Business owners and those with illiquid assets may use an ILIT to ensure funds are available to cover estate settlement costs and to support business transition plans. Liquidity from life insurance proceeds can prevent forced sales of business interests or real estate during probate, allowing for smoother succession and preserving value for heirs. Combining an ILIT with buy-sell agreements, retirement plan trusts, or other business succession tools helps coordinate liquidity and transfer strategies to meet both personal and business goals.
The Law Offices of Robert P. Bergman provides estate planning services tailored to the needs of Alpaugh residents and families throughout Tulare County. We assist with drafting ILITs and related documents such as revocable living trusts, pour-over wills, powers of attorney, and advance health care directives. Our process involves listening to client goals, explaining options under California law, and preparing documents that reflect both legal requirements and individual preferences. We strive to make the planning process clear and manageable so families can move forward with confidence.
Clients choose our firm because we focus on thoughtful planning that aligns legal documents with real-world family needs and financial realities. We work through the practicalities of funding an ILIT, selecting trustees, and coordinating beneficiary designations so that documents operate together as intended. Our process emphasizes clear communication and a focus on minimizing surprises during administration. We also help clients anticipate potential issues such as tax timing, creditor considerations, and coordination with other estate planning instruments.
We provide hands-on guidance through each step of the ILIT setup, including drafting trust terms, preparing assignment documents for existing policies, and advising on annual premium funding strategies. Our approach includes identifying circumstances that may affect the ILIT’s effectiveness and offering alternatives when appropriate, such as coordinated trust arrangements or funding plans that reduce the risk of unintended inclusion in the estate. The goal is to give families a practical, transparent plan that meets their objectives and conforms to applicable rules.
In addition to document preparation, we assist with trustee onboarding, insurer coordination, and recordkeeping recommendations so that the trust is operational and ready when needed. We help clients understand trustee duties, the importance of timely gifts for premium payments, and steps to maintain the ILIT’s intended benefits over time. Our focus on detail and client communication aims to reduce administrative burdens for families and support consistent implementation when life events occur.
Our process for forming an ILIT begins with an initial planning meeting to review family objectives, current insurance holdings, and overall estate goals. From there we recommend a course of action, prepare the trust document, and coordinate any necessary policy transfers or new policy purchases. We provide drafting, trustee selection guidance, and assistance with funding mechanics. After the trust is in place, we offer guidance on ongoing administration tasks such as documenting premium gifts and maintaining beneficiary communications to preserve the ILIT’s intended benefits under relevant tax and estate rules.
The first step involves a detailed review of current life insurance policies, beneficiary designations, estate assets, and family circumstances. We discuss objectives such as probate avoidance, creditor protection, or staged distributions to determine whether an ILIT is the appropriate tool. This meeting also covers timing considerations, potential tax implications, and whether transferring an existing policy or purchasing a new policy within the trust is preferable. Clear communication at this stage sets the foundation for documents that work together effectively.
During document review we collect copies of existing policies, beneficiary forms, wills, trust documents, and relevant financial information. This helps identify any conflicts or gaps that could affect the ILIT’s operation. Gathering facts early allows us to provide realistic recommendations about transfer timing, funding mechanisms, and trustee selection. We also discuss estate size, potential creditor issues, and family dynamics so the planning aligns with your specific situation and long-term goals.
After reviewing relevant documents and goals, we present a recommended strategy that addresses ownership transfer, gift funding, and trustee roles. We draft the ILIT and any ancillary documents needed for implementation, such as assignment forms and trustee acceptance statements. This stage includes explaining the legal and practical implications of proposed actions so you can make informed decisions about moving forward with the trust formation and funding plan.
Implementation focuses on executing the trust document, transferring ownership of existing policies where appropriate, and setting up the funding mechanism for premiums. This includes coordinating with the insurance company to change policy ownership, preparing assignment documents, and providing guidance on annual gifts to support premiums. We also advise trustees on recordkeeping and beneficiary notice procedures that help preserve the trust’s intended tax and estate planning benefits over time.
If transferring an existing policy, we coordinate with the insurer to effect the ownership change in a manner consistent with the trust terms while documenting the transfer for legal and tax purposes. If the trust will acquire a new policy, we assist in structuring the purchase and naming the trust as owner and beneficiary. We ensure that the necessary documentation is completed properly so the policy sits within the trust according to the plan and that insurers have the correct payee designations.
Funding involves establishing a reliable process for making annual gifts to the trust to cover premiums. We advise on structuring gifts to qualify for annual exclusion treatment where applicable and on preparing notices to beneficiaries when required. Maintaining contemporaneous records of gifts and premium payments supports the trust’s administrative integrity and is important for tax and accounting purposes. Clear procedures reduce the likelihood of administrative missteps that could affect the intended outcomes.
Once the trust is operational, we provide trustees with guidance on recordkeeping, distribution processes, and compliance with trust terms. Trustees should maintain detailed records of premium payments, gift notices, and communications with beneficiaries and insurers. Periodic reviews of the trust and coordination with financial or tax advisers help ensure the ILIT continues to function as intended, particularly when family circumstances or laws change. We remain available to advise trustees during administration or at times when modifications to related estate documents are needed.
We assist trustees in understanding their duties and provide checklists for administration tasks, including premium payment tracking and beneficiary communications. Trustees receive a clear outline of the trust’s distribution provisions and documentation templates to maintain consistent records. This onboarding reduces the potential for administrative errors and helps trustees act confidently and in accordance with the grantor’s documented wishes and the trust’s provisions.
Ongoing coordination with financial advisors and accountants is recommended to address changes in tax law, insurance markets, and family circumstances that could affect the ILIT. Regular reviews help identify whether funding plans remain sufficient and whether trust terms still reflect current goals. We offer periodic consultations to update documents when appropriate and to assist trustees with decisions that arise during administration, ensuring the trust remains responsive to evolving needs while preserving intended benefits.
An Irrevocable Life Insurance Trust is a separate legal entity that owns a life insurance policy for the benefit of named beneficiaries. The grantor transfers ownership of the policy to the trust and gives the trustee authority to manage the policy and distribute proceeds according to the trust terms. This arrangement can remove the policy proceeds from the grantor’s probate estate, enabling faster, private distribution to beneficiaries and helping preserve value for the intended recipients. It is often used to ensure funds are available for immediate needs and longer-term plans. To be effective, the transfer of ownership and the trust’s terms must be properly documented and implemented. The grantor no longer controls the policy once it is placed in the trust, and the trustee must follow the trust’s distribution rules. Coordination with other estate planning documents and careful recordkeeping support the ILIT’s intended outcomes and reduce the risk of disputes or unintended tax consequences. Local law and insurance company procedures can also affect implementation, so planning should reflect practical steps needed to make the trust operational.
Funding an ILIT typically involves making annual gifts to the trust to cover the cost of policy premiums. These gifts can qualify for the annual gift tax exclusion when structured properly, often by providing beneficiaries with limited withdrawal rights that create a present interest. Consistent documentation of gift amounts and timing is important to support exclusion claims and to maintain the trust’s financial records. In some cases, larger lump-sum gifts or other funding mechanisms may be used, with attention to gift tax filing and potential future consequences. Gift tax considerations also include the timing of transfers and whether the policy was purchased by or transferred from the grantor shortly before death. Transfers of existing policies can be subject to lookback rules that may cause inclusion in the grantor’s estate if the grantor dies within a certain period after transfer. Working through funding options in advance and keeping careful records helps align the funding strategy with tax planning goals and reduces the likelihood of unintended inclusion in the estate.
Yes, an existing life insurance policy can often be transferred into an ILIT, but transfers require careful planning. When ownership changes, the insurer must process an assignment and update policy records to name the trust as owner and beneficiary. It is important to confirm the insurer’s procedures and any policy restrictions before initiating a transfer. A new owner designation and proper trust documentation must be in place to ensure the transfer is effective and binding for administrative and legal purposes. Timing concerns include rules that can cause policy proceeds to be included in the grantor’s estate if the grantor dies within a specific lookback period following transfer. Because of this, clients sometimes choose to purchase a policy in the trust name from the outset or to plan transfers well in advance of expected need. Discussing timing and potential implications ahead of transfer helps clients choose the route that best meets their objectives while minimizing unwanted consequences.
The trustee is the person or entity who administers the ILIT and carries out the trust’s terms. Responsibilities include managing the life insurance policy, keeping accurate records of premium payments and gifts, coordinating with the insurer, providing required notices to beneficiaries when gifts are made, and distributing proceeds according to the trust instructions. Trustees must act in good faith and follow the trust’s directions, making administrative competence and integrity important considerations when naming a trustee. Choosing a trustee may involve balancing familiarity with the family and administrative capability. Some clients appoint a trusted family member as trustee and name a corporate trustee or co-trustee to handle investment or administrative duties. Successor trustees should be named to ensure continuity. Clear instructions and onboarding materials for trustees help reduce the learning curve and support consistent administration over time.
An ILIT can offer protection from probate for life insurance proceeds, which can make it more difficult for creditors to reach those proceeds during estate administration. However, protections from creditors or claims such as divorce depend on the trust structure, timing of transfers, and applicable state law. Where protecting proceeds from creditor claims is a priority, the timing of transfers and the trust’s irrevocable nature are important factors to review with legal counsel to align expectations with what is legally achievable. Some protections may be less certain if transfers occur shortly before death or if state laws provide exceptions for certain types of claims. For family members concerned about creditor or marital claims, a tailored trust design combined with early planning is often the most reliable approach. Reviewing property ownership and beneficiary arrangements in the context of the ILIT helps create a plan that balances protection goals with legal realities.
An ILIT works alongside other estate planning documents like revocable living trusts and wills. A revocable living trust can hold other assets and provide instructions for distribution at death, while the ILIT separately holds life insurance policies with its own distribution provisions. A pour-over will is often used to ensure any assets not already placed in a living trust are transferred to it at death, but life insurance owned by an ILIT bypasses probate and goes directly to the trust for distribution under its terms. Coordination prevents conflicting instructions between documents and ensures that beneficiary designations and trust terms operate together as intended. Reviewing all estate planning instruments collectively helps identify and correct inconsistencies, confirm that beneficiary forms align with trust ownership, and ensure trustees and executors have clear guidance. Periodic reviews ensure the overall plan remains cohesive as circumstances evolve.
If the grantor dies shortly after transferring a policy into an ILIT, certain rules may cause the policy proceeds to be included in the grantor’s estate. Many jurisdictions apply a lookback period during which transfers of life insurance may not remove proceeds from the estate for tax purposes. Because of this, planning often accounts for timing considerations, and in some cases clients purchase policies in the trust from the outset rather than transferring recently acquired policies. When transfers occur close to death, it is important to review the specific timing rules and consult with legal counsel to understand possible implications. In some situations, other planning tools may be recommended to achieve similar goals without triggering inclusion rules, and clear communication about timing helps families make choices that best fit their circumstances.
An ILIT can be structured to support beneficiaries with special needs by directing distributions to a supplemental needs trust or by including provisions that preserve eligibility for public benefits. The ILIT can provide financial support for expenses not covered by government programs while avoiding disqualifying direct cash transfers that would affect benefit eligibility. Coordination with special needs planning is essential to ensure funds are used in ways that enhance the beneficiary’s quality of life without jeopardizing needs-based assistance. Working with attorneys and financial advisors familiar with special needs planning helps tailor the ILIT and related trust arrangements. Careful drafting can provide discretionary distributions, payment for housing or medical expenses, and instructions for trustees to supplement rather than replace public benefits. Periodic review and coordination with caregivers and advisors help ensure the plan remains effective and responsive to changing needs.
It is advisable to review an ILIT and related estate planning documents periodically, particularly after major life events such as marriage, divorce, births, deaths, large changes in assets, or changes in tax law. Regular reviews help ensure the trust continues to reflect current goals, funding plans remain adequate for premium payments, and named trustees or beneficiaries remain appropriate. Such reviews also allow you to address changes in insurance markets or policy terms that could affect the trust’s operation. Annual or biennial check-ins with legal and financial advisors are common to confirm that premium funding is on track and that administrative records are current. More frequent reviews may be needed when there are complex assets, business interests, or evolving family circumstances. Keeping documentation up to date and maintaining open lines of communication with trustees helps the ILIT function as intended over time.
After the insured’s death, trustees should notify the insurance company of the death and file a claim for policy proceeds, provide the insurer with the trust documents and trustee identification, and follow the trust’s distribution instructions for beneficiaries. Trustees should also review the trust terms for any required creditor notices or specific directions about how proceeds are to be used, and they should maintain detailed records of all communications and transactions. Trustees may need to coordinate with tax advisors to handle reporting and potential tax matters arising from distributions. Trustees should act according to the trust’s provisions and in the best interests of the beneficiaries, keeping detailed accounting records and providing transparency about distributions. If questions arise about interpretation of terms or legal obligations, trustees can consult the attorney who drafted the trust for guidance on administration steps. Prompt, organized administration helps reduce disputes and ensures proceeds are used in line with the grantor’s documented intentions.
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