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Step 1
Acquire a permanent life insurance policy on your life to fund your ILIT. Whole life insurance or guaranteed universal life contracts are typically best suited for use in trust planning. The trust you will create will be both the owner and beneficiary of this policy. Having the trust own the policy will remove its death benefit from the estate of the insured, thus reducing potential estate tax exposure.
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Step 2
Convert term insurance that you currently own into the appropriate permanent coverage. If you are currently uninsured, contact an insurance professional for assistance in acquiring the appropriate policy for your ILIT.
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Step 3
Designate trustees for your trust. Trustees will oversee the funds in the trust at your passing and disperse assets to your children as per the guidelines in the trust document. Designating a trustee is perhaps the most important part of the process since they are the ones who will be working with your heirs in the wealth distribution process. Trustees can be individuals or professional trust companies.
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Step 4
Meet with an attorney to draft the trust. The attorney will help you make important decisions regarding estate tax implications and the design of the trust. Most attorneys will take several weeks to draw up and execute the document. It is very important that you fully read and understand the trust before signing it since it is irrevocable and cannot be changed once executed.
