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Tisser's Top Ten Irrevocable Life Insurance Trust Tips

IRREVOCABLE LIFE INSURANCE TRUST TIPS

The following top ten tips about Irrevocable Life Insurance Trusts (ILIT) are so important, that the failure to comply with any one of them can not only cause the estate plan to be ruined but can cause a death tax on the life insurance proceeds, even though they are held in the ILIT.

  • DO NOT make the insured the trustee or the beneficiary of the ILIT.
  • DO make sure that the ILIT is the owner and the beneficiary of the life insurance policy.
  • DO make sure that the beneficiaries have Crummey powers, allowing them to withdraw contributions made to the ILIT so no adverse gift tax consequences occur.
  • DO make sure that the insured’s contact with the insurance company is kept to a minimum.
  • DO make sure that the trustee is given the right to loan or sell to, as well as borrow or purchase from, the insured’s estate or other trust created by the insured.
  • DO make sure that the trust allows contributions to the trust to be made by persons other than the person creating the ILIT.
  • DO NOT have the insured pay the insurance premiums; the trustee should make all premium payments.
  • DO make sure that the distribution provisions “mirror” the distributions in the insured’s Will or Living Trust.
  • DO make sure that the ILIT obtains its own federal taxpayer identification number.
  • DO make sure that you have sat down with your advisor and discussed allocating a portion of your generation-skipping tax (“GST”) exemption to the ILIT so as to avoid GST to the trust and its beneficiaries at a later date.