Who Can Say Irrevocable Life Insurance Trust?

Slowing reemerging from my nether world and just have to give you the PS on that. Turns out Lisa, (Thanksgiving psychic) has her very own beloved pedigreed German Shepherd. Of course she does.

I have landed on my ass in the (supposedly) real world, smack dab in the land of Irrevocable Life Insurance Trusts. It all happened innocently enough. My financial advisor recommended I take a look at the current state of my life insurance which I bought in my post-9/11 fog. God only knew what I bought. Turns out I was spending a ton of money each year for life insurance that wasn’t really working for me, though I am now hard pressed to remember why. Something about it being a sort of savings type of fund thingy, one where the reward diminishes over time.

In stepped an “insurance broker.” We muddled through a menu of options and settled on two policies from two different insurance companies. Why put all your eggs in one basket, right? And that was the easy part. One Saturday morning a bumbling man arrived with a brief case containing a syringe,  a scale,  a measuring tape and a blood pressure cuff. He filled out forms and coaxed my blood into slim glass vials. I turned out to be a Supercalifragilistic Premium customer. Yay lower prices!

And then someone said it: “ILIT” Did I have one? My lawyer was called. I did have one. Turns out there was this very complicated thing that was supposed to happen with my ILIT. Something like this.

Step 1: A letter gets sent to me from my ILIT trustee, asking me if my kids want to draw any of the money out of the trust

Step 2: On their behalf I decline. I have 30 days to do this.

Step 3: Using the funds I have put into the trust, the trustee pays my life insurance premiums.

By doing this, the life insurance proceeds won’t ever be included in my taxable estate because I didn’t personally buy the life insurance. The trust bought it. The bad news is that my kids might decide to take the funds during that 30 day window, in which case this whole thing goes out the window. To avoid this, I can pay all the premiums before the kids turn 18. Not sure if that is happening in my case. Another question I need to ask.

The crazy thing is that I had one of these ILIT thingys created for me in 2003, but never knew about it and never knew I was supposed to be paying my insurance through it. Good thing I haven’t died yet.

My ILIT (Irrevocable Life Insurance Trust) Trustee (apparently it was my father) was supposed to send me (as guardian to the beneficiaries) this letter, something known as a “Crummey” letter. No really. That’s what its called. It was named after a famous tax case where a father wanted to give his kids some money and created a trust.

In going through this process, I had to contact my lawyer, one I found here in Seattle. Her price for creating a brand new ILIT seemed high and so my financial advisor questioned her and she promptly fired me as a client. Nice. Real professional.

I now have a new attorney. She’s written a book called “Where there’s a Will There’s a Way.” Impressive. I like an attorney who writes books.

It’s amazing what we as widows and widowers find ourselves facing, though this little lesson applies to anyone with kids. As I try to preach to all my friends:


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  1. Jen December 18, 2010 at 11:48 am

    Why does it have to be so complicated? I have an ILIT too, having saddled my brother with the trustee responsibilities. How does anyone negotiate these waters without a lawyer, an accountant and a financial advisor?

  2. Eric Van Haaften January 20, 2017 at 11:09 pm

    Funny and creative way to write about etstae planning. We normally recommend talking with an estate planning attorney to get an estimate on the amount your estate will owe in taxes now along with future growth projections.We normally recommend talking with an estate planning attorney to get an estimate on the amount your estate will owe in taxes now along with future growth projections. It is important to remember to have your trust created before the life insurance is purchased and drafted by a qualified estate planning attorney. Good Luck in 2017!

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