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Dec 1, 2010 12:00 PM
Nursing the Sick ILIT
How a trustee can avoid liability when a trust lacks liquidity
Now more than ever, trustees, and in particular, corporate trustees, face administrative issues that arise in relation to an irrevocable life insurance trust (ILIT), in which the primary asset is one or more policies of life insurance on the grantor's life. These ILITs are sometimes referred to as “unfunded ILITs” although that name is a misnomer, as these ILITs are funded with life insurance policies and sometimes a small amount of cash. Recently, trustees have encountered various problems (for example, lack of liquidity to maintain the life insurance policy and failures in Crummey
To complicate matters, corporate trustees may no longer have regular contact with the grantor. Or, individual trustees may have contact with the grantor, but not wish to upset him — especially if the grantor is a friend, client or family member. But individual trustees also face liability. For all actions involving an ILIT, the trustee's duty and legal concern is to administer the trust for the benefit of the beneficiaries exclusively and not for the grantor, even when the trustee's primary or initial relationship is with the grantor.
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Topics of Interest
| Estate Tax | Donor Advised Funds |
| GSTs | Family Offices |
| Private Foundations | Life Insurance |
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Topics of Interest
| Estate Tax | Donor Advised Funds |
| GSTs | Family Offices |
| Private Foundations | Life Insurance |
| 2010 Tax Act News | Industry Trends Surveys |
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