| name | ilit |
| title | Irrevocable Life Insurance Trust (ILIT) |
| description | Drafts an Irrevocable Life Insurance Trust (ILIT) compliant with IRC § 2042 and state trust laws to exclude life insurance from the grantor's taxable estate. Covers Crummey withdrawal rights, trustee powers, distributions, and execution formalities. Use when drafting ILITs, life insurance trusts, estate tax exclusion trusts, or Crummey trusts. |
| author | CaseMark |
| author_url | https://github.com/CaseMark/skills/tree/main/skills/legal/ilit |
| license | Apache-2.0 |
| version | 0.1.0 |
| execution_mode | open |
| jurisdiction | us |
| practice | trusts-and-estates |
| language | en |
Irrevocable Life Insurance Trust (ILIT)
Drafts a comprehensive ILIT that removes life insurance proceeds from the grantor's taxable estate under IRC § 2042 while preserving annual gift tax exclusions via Crummey powers.
Prerequisites
Collect before drafting:
- Grantor — full legal name, SSN/TIN, domicile state
- Policy info — carrier, policy number(s), face amount(s), insured, current ownership, term vs. permanent
- Trustee — initial trustee (NOT grantor), successor(s), corporate trustee if any
- Beneficiaries — primary and contingent with DOBs, relationships; minor sub-trust termination ages
- Funding plan — existing policy transfer vs. trust-applied new policy; annual premium amount
- Jurisdiction — state of trust situs; execution formalities (witnesses, notarization)
- Existing estate plan — coordination with will, revocable trust, other ILITs
Drafting Workflow
Article I — Declaration of Trust
- State irrevocability explicitly — no amendment, modification, or revocation by grantor
- Purpose: hold life insurance outside grantor's taxable estate
- Grantor surrenders ALL incidents of ownership per IRC § 2042
- No retained powers under IRC §§ 2036, 2038, or 2042
Article II — Parties
- Grantor and trustee: full legal names, addresses, fiduciary acceptance
- Succession: resignation procedure, removal for cause, appointment mechanism
- Grantor must NOT serve as trustee or retain trustee-removal-and-replacement power — constitutes an incident of ownership
Article III — Trust Property & Policy Transfer
- Schedule A: each policy with carrier, number, face amount, insured
- Assignment language transferring all ownership rights to trustee
- Procedure for future policy additions
- § 2035 three-year rule: existing policy transfers trigger lookback — if grantor dies within 3 years, proceeds included in estate. Document transfer date prominently.
- New policies: trust applies and owns ab initio (no § 2035 issue)
Article IV — Crummey Withdrawal Rights
Crummey notice template:
To: [Beneficiary Name]
Date: [Date of Contribution]
Amount: $[Amount] contributed to [Trust Name]
You have the right to withdraw $[pro-rata share].
This right expires [30/45] days from this notice date.
If not exercised, the right lapses automatically.
— [Trustee]
