��������Ƶ

Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

The importance of creating an irrevocable life insurance trust is not to be underestimated, offering as it does a variety of valuable protections that can benefit individuals and families. Placing a policy in such a trust ensures the assets it holds will no longer form part of one’s estate, thereby safeguarding them from creditors or any potential future legal disputes. Not only this, but irrevocable trusts also offer an effective way to minimize estate taxes - the death benefits are exempt from said taxes - making them particularly attractive for those with substantial fortunes.

There’s further flexibility to be had with these kinds of trusts too; their nature allows you to tailor them exactly according to your individual needs and preferences. And with relevant information available on the ��������Ƶ community template library – ��������Ƶ being ‘the world’s largest open source legal template library’ – anyone can draft and customize high quality documents without the need for specialist input or hefty fees. That said, if you do require legal advice when setting up such a trust, finding experienced help should not prove difficult.

Aside from its practical advantages however, adding an irrevocable trust into your financial plan also grants peace of mind that loved ones are set up for success upon one’s passing; knowing that provisions have already been made can be hugely reassuring. Plus with conditions able to be written in regarding how the death benefits are divided amongst beneficiaries – even those with complex requirements – you can rest easy knowing that your wishes will be respected just as you intended them to be if ever the worst were to happen.

Although highly beneficial for individuals and households alike, there are certain things worth bearing in mind when considering an irrevocable life insurance trust; using ��������Ƶ’s comprehensive step-by-step guide is highly recommended so as to make sure everything is set up correctly while understanding all associated implications along the way - no account required! So why not take a look at our helpful guidance and check out our vast selection of templates today?

Definitions

Beneficiaries - People or organizations who will receive assets from a trust.
Trustor - The person who creates the trust.
Trustee - A person or organization responsible for managing the trust assets and distributing them according to the instructions in the trust document.
Trust document - The legal document that outlines the trustor’s wishes and establishes the trust.
Tax implications - The taxes that must be paid when creating or managing a trust.
Trust plan - A plan that outlines how the trust assets will be managed and invested.

Contents

1. Identifying the Beneficiaries of the Trust
2. Creating a list of potential beneficiaries
3. Deciding who the primary beneficiary of the trust will be
4. Deciding the Type of Trust
5. Researching the types of trusts available
6. Determining which type of trust would be best for the situation
7. Choosing the Trustee
8. Considering the best person or organization to hold the trust
9. Making sure the trustee has the necessary qualifications
10. Funding the Trust
11. Collecting all relevant documents
12. Establishing a bank account in the name of the trust
13. Depositing funds into the trust account
14. Managing the Trust Assets
15. Investing trust assets
16. Designing a trust plan
17. Tax Implications
18. Researching and understanding the tax consequences
19. Ensuring the trust is properly registered with the IRS
20. Keeping the Trust Updated
21. Staying informed of any changes in the law
22. Making changes to the trust as needed
23. Terminating the Trust
24. Following the instructions in the trust document
25. Distributing the trust assets according to the instructions
26. Preparing Necessary Documents
27. Complying with the requirements to file with the courts
28. Documenting the Final Disposition
29. Keeping records of all transactions
30. Filing the necessary paperwork to close out the trust

Get started

Identifying the Beneficiaries of the Trust

• Identify the beneficiaries of the trust. This should include any individuals or organizations that you want to benefit from the trust.
• Consider the tax implications of your decision when selecting the beneficiaries. Some trusts may be subject to estate taxes, so it is important to choose beneficiaries carefully.
• Make sure to include the beneficiaries’ addresses and Social Security numbers in your trust documents.
• When you have finalized your list of beneficiaries, you can check this step off your list and move on to the next step.

Creating a list of potential beneficiaries

• Identify the people that you would like to receive life insurance proceeds in the case of your death
• These individuals are known as “beneficiaries” and can include family members, friends, charities, or organizations
• Make sure to include their full name, address, and other relevant contact information
• Once you have your list of potential beneficiaries, you can proceed to the next step of deciding who the primary beneficiary of the trust will be
• You will know you have completed this step when you have your full list of potential beneficiaries written down and ready to proceed to the next step

Deciding who the primary beneficiary of the trust will be

• Review the list of potential beneficiaries
• Consider the financial needs of the primary beneficiary
• Choose the primary beneficiary of the trust
• Make sure to name a contingent beneficiary in case the primary beneficiary dies or cannot accept the trust
• Record the name of the primary beneficiary in the trust document
• When you have chosen the primary beneficiary and recorded the name in the trust document, you can move on to the next step of deciding the type of trust.

Deciding the Type of Trust

• Consult with an estate planning attorney to determine which trust best meets the needs of the primary beneficiary
• Compare the different types of trusts, such as living trusts and irrevocable trusts, and decide which type is best for your situation
• Research the differences in the tax implications of each trust to ensure the primary beneficiary is getting the maximum benefit
• Consider any other factors that may be important to consider when selecting the type of trust
• Once you have made a decision, contact an estate planning attorney to discuss the specifics of the trust
• When you have consulted with the attorney and finalized the type of trust you want to create, you can move on to the next step of creating the trust.

Researching the types of trusts available

• Research the different types of trusts available, such as revocable, irrevocable, charitable, and special needs trusts.
• Learn about the benefits and drawbacks each type of trust has to determine which type is best for your situation.
• Consider consulting a lawyer or financial advisor to help you understand the different types of trusts and decide which type is right for you.
• Once you have researched the different types of trusts and chosen the one that best suits your situation, you can move on to the next step.

Determining which type of trust would be best for the situation

• Research the different types of trusts available, such as an irrevocable life insurance trust (ILIT), a living trust, or a dynasty trust
• Review the benefits and drawbacks of each trust type, such as tax considerations, privacy, and protection from creditors
• Consider the size of the estate, the age of the beneficiaries, the purpose of the trust, and the terms of the trust
• Speak to an estate planning attorney to discuss which trust type would be best for the situation
• Make a decision and create the trust documents with the help of a lawyer
• You will know you have completed this step when you have selected the trust type that best fits the situation and have set up the trust documents.

Choosing the Trustee

• Decide whether to use an individual or an organization as a trustee of the irrevocable life insurance trust
• Research and find a trustee who is trustworthy and experienced in administering trusts
• Obtain background information on the trustee, such as references and credentials
• Research the local laws and regulations regarding trusts and trustees
• Draft a trustee agreement that outlines the trustee’s duties and responsibilities
• Have the trustee sign the agreement
• When you have found a trustee and they have signed the agreement, you can check this off your list and move on to the next step.

Considering the best person or organization to hold the trust

• Research the qualifications and fiduciary responsibilities of a trustee
• Consider who would make the best trustee: an individual, a bank or trust company, or a combination of the two
• Consider if any of the potential trustees have any conflicts of interest or would pose a risk to the trust
• Make sure the trustee has the experience and resources to properly administer the trust
• Once you have selected a trustee and they have agreed to serve, you can move on to the next step.

Making sure the trustee has the necessary qualifications

• Confirm that the trustee is a qualified individual or organization capable of administering an irrevocable life insurance trust.
• Ask the trustee to provide proof of qualifications, such as a copy of their trust document or evidence of a professional license.
• Make sure the trustee is aware of their responsibilities and has a clear understanding of their fiduciary duties.
• Once you have confirmed the qualifications of the trustee, you can move on to the next step of funding the trust.

Funding the Trust

• Gather all relevant documents (bank statements, trust documents, etc.)
• Make sure the irrevocable trust has enough assets to be fully funded
• Transfer the assets to the irrevocable trust
• Provide the trustee with a certificate of title to the trust
• Document the transfer of assets in the trust document
• Ensure the trustee has the necessary authority to manage the trust assets
• When all the above steps are completed, you can check this off your list and move on to the next step.

Collecting all relevant documents

• Gather all documents relevant to the trust, such as the trust agreement, death benefit beneficiary designation forms, and life insurance policy documents
• Make copies of the documents and keep them in a secure place
• Make sure that all of the documents are properly executed and signed
• When all of the documents have been collected and copies made, you can check this off your list and move on to the next step of establishing a bank account in the name of the trust.

Establishing a bank account in the name of the trust

• Gather the trust documents and create a copy of the trust agreement.
• Contact a bank to open a bank account in the name of the trust. This will be the trust’s primary bank account. You will need to provide the copy of the trust agreement and proof of the trustee’s identity.
• Read and sign the bank signature card.
• Request the bank to provide you with all the required paperwork, such as checkbook order form, deposit slips, etc.
• Once all documents are completed and signed, you can submit them to the bank.
• Check with the bank to make sure the account is opened and operational.
• You will know the step is complete when you receive confirmation from the bank that the trust account has been opened and is operational.

Depositing funds into the trust account

• Contact the bank that was chosen for the trust account and arrange for the transfer of funds
• Pay any applicable fees associated with opening the account and transferring funds
• Notify the institution of any other requirements that need to be met
• Transfer the funds from the donor’s account to the trust account
• Ensure that the trust documents have been properly recorded
• Monitor the trust account to ensure that the funds have been received
• Once the funds have been received by the trust and properly recorded, you can check this off your list and move on to the next step.

Managing the Trust Assets

• Place the insurance policy into the trust as soon as possible.
• Make sure to transfer ownership of the policy from the grantor to the trust.
• Keep the policy up to date and make sure to pay the premiums on time.
• Make sure to always keep the policy current and in force.
• Monitor the trust assets to ensure the trust remains in compliance with the terms of the trust.

When you have successfully placed the insurance policy into the trust, transferred ownership of the policy from the grantor to the trust, kept the policy up to date and paid the premiums on time, and monitored the trust assets to ensure the trust remains in compliance with the terms of the trust, you can check this off your list and move on to the next step.

Investing trust assets

• Gather all of the financial documents associated with the trust assets
• Research investment options and decide which are most appropriate for the trust
• Invest the trust assets in the chosen options
• Monitor the investments to ensure that the trust is performing well
• Document all investment details and decisions
• When all of the trust assets have been invested, you can move on to the next step of designing a trust plan.

Designing a trust plan

• Consult a lawyer or tax professional to ensure that the trust meets all legal requirements
• Work with the lawyer or professional to decide who will be the trustee, what assets will be placed in the trust, and who will be the beneficiary
• Draft a trust document that outlines the details of the trust, including the parameters of the trust and the succession plan
• Sign the trust document and have it notarized
• You will know you have finished this step when you have a signed and notarized trust document.

Tax Implications

• Consult with an attorney who is knowledgeable about the tax implications of an irrevocable life insurance trust
• Gather information on the Internal Revenue Service (IRS) rules and regulations regarding life insurance trusts
• Research the tax consequences of creating and funding an irrevocable life insurance trust
• Become familiar with the different types of taxes that can be imposed on the trust
• Learn what tax deductions might be available when creating an irrevocable life insurance trust

When you can check this off your list:

• When you have consulted with an attorney, researched the IRS rules and regulations, and understand the tax consequences of creating an irrevocable life insurance trust.

Researching and understanding the tax consequences

• Determine which type of trust best suits your needs and goals
• Consult a knowledgeable attorney to understand the tax implications of the trust
• Research if there are any state or local laws that may affect the trust
• Discuss the trust with a financial advisor to ensure all requirements for taxation are met
• When you have a solid understanding of the tax consequences, you can move on to the next step.

Ensuring the trust is properly registered with the IRS

• Contact the IRS and get the necessary forms to register the trust
• Fill out the forms and include copies of the trust documents
• Submit the forms to the IRS
• Wait for the IRS to process the forms and give notice that the trust is properly registered
• You will know that the trust is properly registered with the IRS when you receive notice from the IRS.

Keeping the Trust Updated

• Regularly review the trust to make sure all of the information is up to date
• Make any necessary changes or updates, such as adding additional beneficiaries or changing the trustee
• Review the trust every few years to confirm that it is still within the legal and tax guidelines of the state
• Have a lawyer or tax professional review the trust to ensure it is still in compliance
• Once the trust has been reviewed and updated, you can move on to the next step.

Staying informed of any changes in the law

• Stay current by subscribing to any legal updates or newsletters that may be available
• Keep track of any changes in the law that may affect the trust and be sure to consult with a professional if you are unsure of any legal implications
• Check in once a month to ensure that the trust is current and up to date
• When you can confirm that the trust is still up to date and the law has not changed, you can move on to the next step of making changes to the trust as needed.

Making changes to the trust as needed

• Consult with your attorney to ensure any changes to the trust are in compliance with the law.
• Review changes with your accountant to make sure you understand any potential tax implications.
• Update the trust document to reflect any changes.
• Make sure the trust is still valid and has not been revoked.
• When you have completed the necessary changes and verified their accuracy, you can check this step off your list and move on to terminating the trust.

Terminating the Trust

• Make sure all the conditions for terminating the trust have been met
• Notify the trustee that the trust is being terminated
• Ensure that all the trust assets have been distributed to the beneficiaries
• Provide an accounting to the beneficiaries of the trust
• File the necessary paperwork with the courts to terminate the trust
• Once all of the above steps are completed, the trust has been terminated.

Following the instructions in the trust document

• Review the trust document to determine who the Trustee is, what their responsibilities are and the powers they have.
• Review the trust document to determine who the beneficiaries are and the specific instructions for how trust assets should be distributed.
• Follow the instructions as outlined in the trust document to ensure that the trust is carried out as intended.
• Keep records of all documents and actions taken with respect to the trust.
• When the instructions in the trust document have been carried out, the step will be complete.

Distributing the trust assets according to the instructions

• Contact the beneficiaries of the trust to determine how they would prefer to receive the assets
• Contact the asset holders to find out the best way to transfer the assets to the beneficiaries
• Prepare the paperwork necessary to transfer the assets to the beneficiaries
• Monitor the transfers to ensure that the assets are distributed according to the trust’s instructions
• Once all assets have been transferred, the step is complete and you can move on to the next step.

Preparing Necessary Documents

• Gather all necessary documents (deeds, titles, insurance policies, etc.) that are to be held in trust and prepare a list of the documents
• Have documents reviewed and signed by a notary public
• Prepare a funding document for each asset to be placed into the trust
• Have all documents reviewed by a qualified attorney to ensure that the trust is structured correctly
• Once all documents are properly executed, you can move on to the next step of distributing the trust assets according to the instructions.

Complying with the requirements to file with the courts

• Obtain the necessary forms and instructions required to file with the court from a legal representative or the court itself.
• Prepare the necessary documents and forms as outlined on the instructions.
• File the forms and documents with the court and pay the filing fees.
• Receive a court order or confirmation that the trust has been approved and accepted.
• Check off the step and move on to the next step, documenting the final disposition.

Documenting the Final Disposition

• Obtain copies of the documentation that was filed with the court, and make sure that it is complete and accurate
• Get a copy of the trust agreement and make sure it is up to date
• Record the date of the trust agreement in the trust document
• Provide an accounting of all the trust assets and their corresponding values
• Prepare a document listing all distributions from the trust and the beneficiaries who received them
• Make sure that the trust is properly funded with the assets that were specified in the trust agreement and that all the assets have been transferred to the trust
• Keep a record of all transactions that occurred within the trust, including any additions or withdrawals
• Keep a list of all the trustees, current and past, along with their contact information
• Once you have all the documents in place, and you have verified that the trust is properly funded, you can document the final disposition of the trust.

Keeping records of all transactions

• Gather all relevant documents pertaining to transactions done during the trust setup
• Keep detailed records of all transactions such as account statements, purchase orders, and tax forms
• Ensure that all documents have accurate information and are signed and dated
• Store all documents in a secure location
• When you have gathered and stored all documents, you have completed this step and can move on to the next step.

Filing the necessary paperwork to close out the trust

• Gather all documentation related to the trust, including documents related to the life insurance policy
• Consult an attorney to ensure that all documents related to the trust are properly filed and that all necessary paperwork is completed
• Submit the paperwork to the appropriate court to close out the trust
• Once you have received confirmation that the trust was properly closed out, you can move on to the next step.

FAQ

Q: Is an Irrevocable Life Insurance Trust suitable for everyone?

Asked by Hannah on April 23rd 2022.
A: An Irrevocable Life Insurance Trust (ILIT) is not suitable for everyone, as it depends on your individual needs and circumstances. It is a complex legal document and should only be used by people who understand the risks involved and the implications of using such a trust. Generally, ILITs can be used to help protect assets from taxation or provide a financial security for beneficiaries in the event of death. ILITs can be particularly beneficial for high-net-worth individuals and families, and those with complicated financial situations or estate plans. That said, it is important to speak to a qualified lawyer or financial adviser before setting up an irrevocable trust as they will be able to provide guidance tailored to your individual needs.

Q: Are there any tax benefits associated with an ILIT?

Asked by Aliyah on May 2nd 2022.
A: Yes, there are tax benefits associated with an ILIT. A major benefit of setting up an ILIT is that the assets held within it are not subject to taxation while they remain in the trust, meaning that any gains made on those assets are not taxable. This can be particularly beneficial for high-net-worth individuals and families who may otherwise have to pay a large amount of tax on their assets. Additionally, any gifts made from the trust are exempt from federal gift taxes, allowing individuals to transfer wealth without incurring large tax liabilities.

Q: What types of assets can be held in an ILIT?

Asked by Michael on June 6th 2022.
A: An ILIT can hold a variety of different types of assets, including cash, stocks, bonds, real estate, and other financial instruments. Additionally, life insurance policies can also be held in an ILIT, which can provide a source of income for beneficiaries in the event of death. It is important to note that all assets held in the trust must be irrevocable once they have been transferred into the trust; this means they cannot be sold or transferred out of the trust once they have been placed in it.

Q: What happens if there are changes to my circumstances after setting up an ILIT?

Asked by Emma on July 8th 2022.
A: If there are changes to your circumstances after setting up an ILIT, it is important to contact your lawyer or financial adviser as soon as possible so that they can update your trust agreement accordingly. For example, if you get married or divorced after setting up the trust, it is important to update the agreement so that your new spouse or ex-spouse’s rights are taken into account. It is also important to review the agreement regularly so that it remains up-to-date with any changes in circumstances or laws that may affect the trust.

Q: Can I change my beneficiaries after setting up an ILIT?

Asked by Isabella on August 12th 2022.
A: Yes, you can change your beneficiaries after setting up an Irrevocable Life Insurance Trust (ILIT). However, this should only be done with caution; any changes made must take into account any existing agreements within the trust and should be done with professional legal advice from a qualified lawyer or financial advisor. Additionally, any changes made must also take into account any applicable laws and regulations related to trusts in your jurisdiction; if these are not met then the change could be invalidated by a court at a later date.

Q: Can I add additional assets to my ILIT after it has been set up?

Asked by Daniel on September 15th 2022.
A: Yes, you can add additional assets to your ILIT after it has been set up; however this should only be done with professional legal advice from a qualified lawyer or financial adviser who understands trusts and the applicable laws and regulations related to them in your jurisdiction. Additionally, all assets added must be irrevocable once they have been transferred into the trust; this means they cannot be sold or transferred out of the trust once they have been placed in it.

Q: Is there a time limit for creating an ILIT?

Asked by Matthew on October 18th 2022.
A: Generally speaking there is no time limit for creating an Irrevocable Life Insurance Trust (ILIT); however each jurisdiction has its own laws regarding trusts which should always be taken into account when creating one. Additionally, if you want your ILIT to come into effect during your lifetime then you will need to set it up before you pass away; if you wait until after you have passed away then you will no longer have control over how your assets are distributed according to your wishes.

Q: Does an ILIT need to be registered with any government body?

Asked by Mia on November 21st 2022.
A: Generally speaking no registration is required with any government body when creating an Irrevocable Life Insurance Trust (ILIT); however each jurisdiction has its own laws regarding trusts which should always be taken into account when creating one. Additionally, depending on where you live there may also be specific rules related to registering trusts which must be followed; this could include registering with local or state governments depending on where you live or where the trust is located. It is therefore important to speak with a qualified lawyer or financial adviser who understands trusts before proceeding with creating one.

Q: Is legal advice necessary when setting up an ILIT?

Asked by Joseph on December 24th 2022.
A: Yes, legal advice is necessary when setting up an Irrevocable Life Insurance Trust (ILIT). As this type of trust involves complex legal documents and decisions which could have long-term implications for both you and your beneficiaries it is important to ensure that everything is done correctly; this requires knowledge of both trusts and applicable laws and regulations in your jurisdiction which only a qualified lawyer or financial adviser will possess. Additionally, speaking with a lawyer or financial adviser also ensures that you are fully aware of all risks associated with setting up such a trust before proceeding with creating one.

Example dispute

Lawsuits Involving Irrevocable Life Insurance Trusts

• The plaintiff can raise a lawsuit if they believe the irrevocable life insurance trust was created improperly or not in accordance with the terms of the trust.
• The plaintiff can also raise a lawsuit if they believe the irrevocable life insurance trust was not in the best interests of the beneficiaries or for the benefit of the trust.
• The plaintiff can also assert that the administration of the trust was not done in accordance with the trust’s terms and conditions.
• The plaintiff can also raise a lawsuit if they believe that the assets of the trust were mismanaged or not used for the benefit of the beneficiaries as provided for in the trust’s terms.
• The plaintiff can also raise a lawsuit if they believe that the trustee breached their fiduciary duty in administering the trust.
• The plaintiff may seek damages in the form of monetary compensation for any losses sustained as a result of the trustee’s breach of fiduciary duty or other improper or illegal actions.
• The plaintiff may also seek injunctive relief to prevent the trustee from continuing to breach their fiduciary duty or engaging in other improper or illegal actions.
• The plaintiff may also seek an accounting of the trust’s assets and activities to ensure that the trust is being administered in accordance with the trust’s terms and conditions.

Templates available (free to use)

‍