What are the duties of the Trustee of an irrevocable life insurance trust (ILIT)?

It is important for Trustees of irrevocable life insurance trusts to understand their duties which exist even while the insured is alive.  Some of the most important duties are:

• The Trustee must pay premiums on the policy. This money would usually be added to the trust by the insured person as each premium comes due.
• The money added to the trust by the insured is taxable unless the Trustee issues a “Crummey” notice to each beneficiary letting them know that they do have the right to ask for a part of that money added to the trust to pay the policy’s premium. Issuing a Crummey notice qualifies this added money for a gift tax exemption.
• The Trustee could be held responsible if the insurance company through which the policy is purchased becomes financially insolvent and the Trustee did not anticipate and prevent financial losses.
• The trustee could also be held responsible if they are found to have made very poor investment or management decisions which resulted in the loss of funds.
• The trustee must ensure they do not have a conflict of interest such as receiving part of the insurance broker’s commission.
• A Trustee has the right to withdraw money from the ILIT to loan to the insured.

When agreeing to become the Trustee of an irrevocable life insurance trust, it is important to understand what your duties will be and have a plan in place for executing them properly.  If you have further questions about this post or a specific ILIT, contact our office at (941) 906-1231.