Six Steps for Implementing an Irrevocable Life Insurance Trust

Some people choose to create an irrevocable trust in order to reduce the overall size of their estate. This, in turn, lowers or eliminates potential estate taxes. Life insurance is an asset that is frequently placed in an irrevocable trust for this purpose.

Overview of the Administration Process

In many ways, the administration of an irrevocable life insurance trust mirrors that of a revocable living trust after the creator of that trust passes away. Following is a general overview of what that process looks like:

  1. The trust is drafted and signed by the creator and trustee.
  2. The life insurance policy is transferred to the trustee, or, in the alternative, the trust establishes ownership of a new life insurance policy.
  3. The funds to pay the initial life insurance premiums must be “gifted” to the trust and the premiums then paid by the trustee.
  4. Additional gifts must be made to the trust in order to pay for future premiums.
  5. When the insured passes away, the trustee must collect the life insurance policy proceeds.
  6. The trustee must then either invest or distribute the proceeds of the policy as outlined in the irrevocable trust instrument.

In addition to the above steps, the trustee must comply with all of the other requirements outlined under California law for administering a trust, such as providing proper notice to the beneficiaries of the trust as well as rendering annual accountings of the trust assets.

Since irrevocable life insurance trusts are often more complex than a simple living trust, it is important to seek guidance from an experienced attorney when it’s time to administer the trust. Search for an attorney who is knowledgeable, responsive, and located in a convenient location. For example, if you live in or around The Colony, you should look for an attorney in Anaheim and not a city that is further away. The Law Office of James F. Roberts & Associates, APC, is conveniently located on La Palma Avenue. We encourage you to contact us today for more information. Reach out to us by phone, email, or online chat!