How to Fill Out an Irrevocable Life Insurance Trust Form (ILIT)

To set up an irrevocable life insurance trust, you draft a trust document naming someone other than yourself as trustee, decide whether that trust will buy a new policy or take ownership of one you already have, sign the document with the required formalities, get the trust its own tax ID, open a bank account in its name, place the policy under the trust’s ownership, and then fund the premiums each year while sending Crummey notices to the beneficiaries. Done correctly, the death benefit passes outside your taxable estate. For 2026, estates above $15 million face a top federal rate of 40%, so a $3 million policy owned personally could cost heirs more than a million dollars in tax that an ILIT would have avoided.¹

Decide First Whether the Trust Will Buy a New Policy or Hold an Existing One

Make this call before the document is drafted, because it changes the tax picture and some of the trust’s terms.

Having the trustee apply for a brand-new policy after the trust exists is the cleaner path. The trust owns the contract from day one, so there is no gift of an existing asset and no three-year lookback to worry about.

Transferring an existing policy is sometimes the only option, usually because your health has changed and new coverage would be unaffordable or unavailable. Two problems come with that route. The current value of the policy counts as a taxable gift. And if you die within three years of the transfer, the full death benefit is pulled back into your gross estate under IRC §2035, erasing the point of the trust.² The clock starts the day ownership officially changes, not the day you sign the trust. Life insurance transfers are specifically excluded from the small-transfer carve-out, so even modest policies are caught.

Information to Gather Before Drafting

Your attorney needs details on three groups of people and one policy.

Grantor (you): full legal name, permanent address, Social Security number, date of birth.
Trustee: the person or institution that will own the policy, pay premiums, and manage trust assets. The trustee cannot be you. Under IRC §2042, if you hold any “incidents of ownership” over the policy, including the power to change beneficiaries, borrow against cash value, or surrender it, the death benefit ends up back in your estate. A spouse can technically serve, but most estate planners discourage it because certain trustee powers can create estate inclusion for the surviving spouse too.³
Successor trustee: the backup who steps in if the primary dies, resigns, or becomes incapacitated. Without one, a court may need to appoint someone.
Beneficiaries: full legal names, dates of birth, relationships, and the share each will receive. Decide shares before drafting, because changing them later is extremely difficult once the trust is irrevocable.

For the policy, pull together the carrier’s name, the policy number, the face value of the death benefit, and any existing cash value or outstanding loans. If you’re transferring an existing policy, you’ll also need its interpolated terminal reserve value, since that figure sets the value of the gift for tax purposes.

Have the Trust Document Drafted

An ILIT is a custom legal document, not a fill-in-the-blank form. An estate planning attorney drafts it to satisfy federal tax requirements and your state’s trust execution laws. Fees generally run between $2,000 and $5,000 depending on complexity and location, covering drafting, review with you, and supervising the signing.

Core provisions the document needs to cover:

Trustee powers. Spell out what the trustee can do: pay premiums from trust funds, borrow against cash value, invest liquid assets, communicate with the carrier, and collect the death benefit. Being specific lets the trustee act on routine matters without going to court.⁴
Distribution terms. How and when beneficiaries receive money after you die. Options include a lump sum, staggered distributions at set ages, or holding funds in trust indefinitely with discretionary distributions. These terms are permanent once signed.
Trustee compensation. If a family member or friend serves, state whether they are paid and how much. Corporate trustees often charge an annual fee starting around $2,000 for a basic ILIT.
Successor trustee provisions. Who takes over, how the transition works, and whether the successor holds the same powers.

The Crummey Power Clause

This is the provision that makes the annual tax benefit work. Without it, every premium you funnel through the trust is a gift of a “future interest,” meaning your beneficiaries only benefit later when you die. Future-interest gifts don’t qualify for the annual gift tax exclusion.⁵

The Crummey power gives each beneficiary a temporary right (typically thirty days) to withdraw their share of any contribution. Beneficiaries almost never exercise the right, because doing so would leave nothing to pay the premium, but the legal right to withdraw converts the gift from a future interest to a present interest. That qualifies it for the annual exclusion of $19,000 per recipient in 2026.⁶ Four beneficiaries, each with a Crummey right, means you can move up to $76,000 a year into the trust without touching your lifetime exemption.

Grantor Trust Status

Most ILITs are drafted as “grantor trusts” for income tax purposes, so any trust income is treated as yours rather than the trust’s. Because a typical ILIT holds only a policy and a small bank balance, there is little or no income to worry about. The classification has one important side benefit: transactions between you and the trust are ignored for income tax, which avoids triggering the “transfer for value” rules that could make part of the death benefit taxable as income.

Execute the Document Properly

An ILIT is not valid until it is properly executed, and a sloppy signing can give someone grounds to challenge it years later.

Grantor’s signature. You sign in front of a notary, confirming your identity and intent.
Trustee’s signature. The trustee signs to accept fiduciary responsibility. Until this happens, no one has legal authority to act for the trust.
Witnesses. Most states require two adult witnesses who have no financial interest in the trust. Beneficiaries, the trustee, and anyone who stands to gain cannot witness. Use disinterested adults such as a neighbor, a coworker, or office staff at your attorney’s firm.
Notarization. The notary completes the acknowledgment and applies their seal, creating a record that the document was signed voluntarily.

Use blue or black ink. Keep the original in a fireproof place such as a safe deposit box or your attorney’s vault. The trustee gets a full copy and you keep one as well.

Set Up the Trust as an Operating Entity

Signing creates the trust, but it cannot hold a policy or receive money until a few administrative steps are done.

Get an Employer Identification Number

The trustee obtains an EIN from the IRS so the trust can open a bank account and file tax returns. The online application at irs.gov issues the number at the end of the session.⁷ The trustee needs their own Social Security number and the trust’s formation date. Form SS-4 can also be mailed or faxed, but the online route takes minutes instead of weeks.⁸

Open a Trust Bank Account

With the EIN, the trustee opens a checking account in the trust’s name. This is where you deposit money for premiums and where the trustee writes checks to the carrier. The bank will ask for a copy of the trust (or a certification of trust) and the EIN confirmation letter.

Place the Policy Under the Trust’s Ownership

For a new policy, the trustee applies as both owner and beneficiary. You are the insured, but the trust owns the contract. The carrier will want a copy of the executed trust agreement to process the application.

For a transferred policy, the trustee submits a change-of-ownership form to the carrier along with a copy of the trust. Processing usually takes several weeks. Once complete, the trust is listed as both owner and beneficiary on the carrier’s records. Confirm the change in writing and keep the carrier’s acknowledgment letter in the trust file.

Fund Premiums and Send Crummey Notices Each Year

Every year you deposit enough into the trust’s bank account to cover that year’s premium. Technically, that deposit is a gift to the beneficiaries, which is why the Crummey power exists.

After each deposit, the trustee sends a written notice to every beneficiary telling them of their right to withdraw their share within the window set in the trust (usually thirty days). The IRS position is that written notices are required for the gifts to qualify as present interests. Two Tax Court decisions, Turner (2011) and Holland (1997), have held that written notice isn’t strictly necessary as a legal matter, since the withdrawal right exists whether beneficiaries know of it or not. Relying on that is a gamble; the IRS still challenges exclusions when notices weren’t sent, and a letter costs almost nothing.

Send notices by a traceable method such as certified mail or FedEx, and keep copies of every notice and delivery receipt. Those records are the trustee’s primary defense if the IRS questions the exclusion.

Gift Tax Reporting

If annual contributions stay within the $19,000-per-beneficiary exclusion for 2026, you generally don’t file a gift tax return.⁶ A Form 709 is required when:

Your gift to any single beneficiary exceeds $19,000. The excess uses up part of your lifetime gift and estate tax exemption ($15 million per person in 2026).¹
You transfer an existing policy into the trust. The terminal reserve value is a taxable gift and must be reported regardless of amount.⁹
You and your spouse elect to split gifts. Both of you file Form 709 even if each share falls under the exclusion.

Form 709 is due April 15 of the year after the gift. An income tax extension automatically covers it.

Keep the Trust Running Properly

Setting the ILIT up is the hard part. Keeping it alive is mostly consistency and record-keeping.

The trustee maintains a permanent file with the original trust document, EIN confirmation, policy statements, bank statements, Crummey notice copies with delivery receipts, and all carrier correspondence. If the trust earns more than $600 of income in a year, the trustee files Form 1041, though most ILITs never clear that threshold. The trustee also has an ongoing duty to monitor the policy itself: confirming premiums are paid on time, reviewing performance on a universal or variable product, and making sure coverage still fits the trust’s purpose. A lapsed policy inside an ILIT is an expensive empty box.

The Three-Year Lookback If You Transferred an Existing Policy

If an existing policy was transferred in, IRC §2035 is the single biggest risk to the plan. Dying within three years of the transfer pulls the full death benefit back into your gross estate as if the trust never existed.² The exemption may absorb some of the amount, but for larger policies the tax hit can be severe.

There is no way to shorten the three years. The only reliable workaround is to have the trust buy a new policy from the start, so no transfer from you ever occurs. For grantors who must transfer, some planners suggest buying a separate term policy outside the trust to cover the estate tax exposure during the lookback window, and dropping it once the three years have passed.

1
Internal Revenue Service. Estate Tax
2
Office of the Law Revision Counsel. 26 USC 2035 – Adjustments for Certain Gifts Made Within 3 Years of Decedent’s Death
3
Office of the Law Revision Counsel. 26 USC 2042 – Proceeds of Life Insurance
4
Finseca. Watch Your Step: Fiduciary Pitfalls for Trustees of Irrevocable Life Insurance Trusts
5
Office of the Law Revision Counsel. 26 USC 2503 – Taxable Gifts
6
Internal Revenue Service. Frequently Asked Questions on Gift Taxes
7
Internal Revenue Service. Get an Employer Identification Number
8
Internal Revenue Service. Instructions for Form SS-4
9
Internal Revenue Service. Instructions for Form 709