Irrevocable Life Insurance Trust (ILIT)

IRREVOCABLE LIFE INSURANCE TRUST (ILIT) AGREEMENT

(Alaska Law Governed — Dynasty / Asset-Protection Edition)

TABLE OF CONTENTS

I. Trust Name and Parties
II. Definitions
III. Irrevocability
IV. Funding — Life Insurance Policy
V. No Incidents of Ownership; Three-Year Rule
VI. Contributions and Premium Payments
VII. Crummey Withdrawal Rights
VIII. Trustee Powers Regarding Insurance
IX. Distributions
X. Spendthrift Protection
XI. Perpetuities and Dynasty Term
XII. Generation-Skipping Transfer (GST) Provisions
XIII. Trustee Succession; Alaska Situs
XIV. Governing Law and General Provisions
XV. Execution
Exhibit A — Schedule of Life Insurance Policies
Exhibit B — Crummey Notice Letter

ARTICLE I — TRUST NAME AND PARTIES

1.1 Name. This trust shall be known as the "[GRANTOR NAME] Irrevocable Life Insurance Trust" dated [__/__/____] (the "Trust").

1.2 Parties.

1.3 Grantor Must Not Serve as Trustee. The Grantor shall NOT serve as Trustee at any time. To preserve the estate-tax exclusion under IRC § 2042 and avoid inclusion under IRC §§ 2036 and 2038, the Trustee shall be an independent person or entity. To qualify for Alaska's dynasty and asset-protection benefits, at least one Trustee should be an Alaska resident, an Alaska-licensed trust company, or an Alaska bank with trust powers, and the Trust's records and administration should be maintained in Alaska.

1.4 Recitals.
WHEREAS, the Grantor desires to create an irrevocable trust governed by Alaska law to own one or more policies of insurance on the Grantor's life; and
WHEREAS, the Grantor intends that the proceeds be excluded from the Grantor's gross estate under IRC § 2042 and that the Trust enjoy the protections of Alaska law, including AS 13.36.310 and AS 34.40.110; and
WHEREAS, the Trustee is willing to hold, administer, and distribute the Trust property under the terms of this Agreement and applicable law;
NOW, THEREFORE, the Grantor creates this Trust and transfers the property described in Exhibit A to the Trustee, in trust, on the terms below.

ARTICLE II — DEFINITIONS

"Crummey Power" — The limited right of withdrawal granted under Article VII.

"Grantor" / "Insured" — [GRANTOR NAME], the person whose life is insured.

"Independent Trustee" — A Trustee who is neither the Grantor, the Grantor's spouse, nor a permissible distributee, and who is not related or subordinate to the Grantor within IRC § 672(c).

"Policy" — Each life insurance policy on the Grantor's life held by the Trust (Exhibit A), and any replacement, additional, or substitute policy.

"Qualified Person Trustee" — A Trustee meeting Alaska's residency/qualification contacts for AS 34.40.110 protection.

"Trust Estate" — All property held under this Agreement, including the Policy and its proceeds.

2.3 Beneficiaries.

Contingent / remainder beneficiaries: [________________________________]

ARTICLE III — IRREVOCABILITY

3.1 Irrevocable. This Trust is irrevocable. The Grantor waives and relinquishes all right to alter, amend, revoke, or terminate this Trust in whole or in part.

3.2 No Retained Beneficial Interest by Grantor. No income or principal shall be distributed to or for the benefit of the Grantor, and no provision shall discharge any legal obligation of the Grantor. (If a self-settled asset-protection design under AS 34.40.110 is desired in which the Grantor is a discretionary beneficiary, that design is incompatible with the IRC § 2042 estate-tax-exclusion goal of an ILIT; do not name the Grantor as a beneficiary of this Trust.)

3.3 Void Attempts. Any attempted revocation or amendment by the Grantor, other than as permitted by Article XI or by court order, shall be void.

ARTICLE IV — FUNDING; LIFE INSURANCE POLICY

4.1 Initial Funding. The Grantor transfers to the Trustee the property listed in Exhibit A, which may include an existing Policy and/or initial seed cash to enable the Trustee to apply for and purchase a new Policy.

4.2 Trustee as Owner and Beneficiary. The Trustee shall be both the owner and the beneficiary of each Policy. Best practice: the Trustee should apply for and purchase a new Policy directly so the Grantor never holds incidents of ownership and the IRC § 2035 three-year rule is avoided.

4.3 Assignment of Existing Policy. If an existing Policy is contributed, the Grantor shall execute an absolute assignment on the insurer's form transferring all right, title, and interest to the Trustee and shall file it with the insurer.

4.4 Schedule. Exhibit A shall be updated for each Policy acquired, assigned, or replaced.

ARTICLE V — NO INCIDENTS OF OWNERSHIP; THREE-YEAR RULE

5.1 No Incidents of Ownership in Grantor (IRC § 2042). Neither the Grantor nor the Grantor's spouse shall hold or exercise any incident of ownership in any Policy, including the power to change the beneficiary, surrender or cancel the Policy, borrow against or pledge the Policy, or assign or revoke an assignment. All such powers vest solely in the Trustee.

5.2 Three-Year Lookback (IRC § 2035). If an existing Policy is transferred to this Trust and the Grantor dies within three (3) years, the proceeds may be included in the Grantor's gross estate under IRC § 2035(a). A Policy purchased and owned by the Trustee from inception is not subject to this lookback.

5.3 No Prohibited Powers. The Grantor shall not serve as Trustee, retain a reversionary interest, or retain any power under IRC §§ 2036, 2038, or 2041 causing estate inclusion.

ARTICLE VI — CONTRIBUTIONS AND PREMIUM PAYMENTS

6.1 Additions. The Grantor or any other person may contribute cash to enable the Trustee to pay premiums. Contributions are gifts and become part of the Trust Estate.

6.2 Premium Payments. The Trustee shall apply contributions and Trust income to pay Policy premiums when due, and is not personally liable for premiums.

6.3 Crummey Procedure. Before or promptly after each contribution, the Trustee shall give written Crummey notice (Article VII) and shall hold the contribution available for withdrawal during the withdrawal period before committing it to premiums.

ARTICLE VII — CRUMMEY WITHDRAWAL RIGHTS

7.1 Present-Interest Gifts (IRC § 2503(b)). Each Beneficiary in Section 2.3 with a Crummey Power may withdraw a portion of each contribution so the gift qualifies for the annual gift tax exclusion.

7.2 Amount. Each holder may withdraw the lesser of (a) the holder's pro-rata share of the contribution, or (b) the federal annual gift tax exclusion per donor under IRC § 2503(b) for the year.

7.3 Notice. The Trustee shall give written notice (substantially in the form of Exhibit B) to each holder (or a minor holder's parent/guardian) within a reasonable time after each contribution, stating the amount, the maximum withdrawable amount, and the deadline.

7.4 Withdrawal Period. The right must be exercised in writing within [30] days after notice; an unexercised right lapses.

7.5 5-and-5 Limit; Hanging Power. To avoid a taxable lapse under IRC §§ 2041 and 2514, the lapse in any year is limited to the greater of $5,000 or 5% of the assets from which the withdrawal could have been satisfied. Any excess withdrawal right shall not lapse but shall carry forward ("hang") and lapse in later years only within the 5-and-5 limit.

7.6 Records. The Trustee shall retain all Crummey notices, proof of delivery, and records of exercise or lapse.

ARTICLE VIII — TRUSTEE POWERS REGARDING INSURANCE

8.1 General Powers. The Trustee has all powers under Alaska Stat. § 13.36.109 and the Alaska Uniform Prudent Investor Act, together with the specific insurance powers below. The Trustee is expressly granted the power to sell, lease, and mortgage all Trust property (significant for the perpetuities treatment under AS 34.27.100; see Article XI).

8.2 Insurance Powers. The Trustee may, in sole discretion: apply for, purchase, own, and hold Policies on the Grantor's life; pay premiums; receive and elect dividends; exercise nonforfeiture options; borrow against or pledge a Policy for Trust purposes only; surrender, exchange (including a tax-free exchange under IRC § 1035), or replace a Policy; collect proceeds; and exercise every owner's right.

8.3 No Duty to Diversify. The Trustee may hold a single Policy as the principal asset and has no duty to determine whether a Policy is or remains a proper investment.

8.4 Tax Administration. The Trustee shall obtain a taxpayer identification number, file required returns, and administer the Trust as a non-grantor trust unless the Grantor's tax advisor confirms grantor-trust income-tax treatment without estate inclusion.

ARTICLE IX — DISTRIBUTIONS

9.1 During the Grantor's Life. The Trustee shall hold the Trust Estate, pay premiums, and (after retaining sufficient premium funds) may distribute income or principal to or among the Beneficiaries (other than the Grantor) under a HEMS standard, in the Trustee's discretion. No distribution shall be made to or for the Grantor.

9.2 Upon the Grantor's Death. The Trustee shall collect the Policy proceeds, hold them as a separate fund, and distribute the Trust Estate to and among the Beneficiaries as set forth in Exhibit A, outright or in further trust.

9.3 Liquidity for the Estate (Discretionary). The Trustee may, but is not directed or required to, purchase assets from or lend funds to the Grantor's estate to provide liquidity. No mandatory direction to pay the Grantor's taxes or debts is created.

ARTICLE X — SPENDTHRIFT PROTECTION

10.1 Spendthrift Clause. Each Beneficiary's interest is held subject to a spendthrift restriction under Alaska Stat. § 34.40.110. No Beneficiary may voluntarily or involuntarily transfer, assign, pledge, or encumber any interest before payment or delivery by the Trustee, and no creditor or assignee may reach the interest before the Beneficiary receives it. The Grantor intends this restriction to be enforceable under applicable nonbankruptcy law within the meaning of 11 U.S.C. § 541(c)(2).

10.2 Validity of Alaska Trust. Under Alaska Stat. § 13.36.310, a trust governed by Alaska law and the property transferred to it are not void, voidable, or subject to a creditor's claim merely because the trust defeats a marital or similar right, except as provided in AS 34.40.110(b).

10.3 Insurance Proceeds Creditor Exemption. The Grantor intends that the Policy and its proceeds, held for beneficiaries other than the Grantor, qualify for the exemptions of Alaska Stat. §§ 09.38.025 and 09.38.030, which exempt unmatured life insurance and annuity contracts and certain insurance and annuity proceeds from creditor claims.

ARTICLE XI — PERPETUITIES AND DYNASTY TERM

11.1 Trustee Power of Sale Controls Perpetuities. Because the Trustee is expressly granted the power to sell Trust property (Section 8.1), the power of alienation is not suspended under Alaska Stat. § 34.27.100, and the Trust may continue in perpetuity (subject only to the 1,000-year limit on certain powers of appointment under AS 34.27.051). Alaska's law thus permits a true dynasty trust.

11.2 1,000-Year Limit on Powers of Appointment. Any power of appointment created under this Trust that is not presently exercisable because of a condition precedent must be irrevocably exercised or terminate within 1,000 years after its creation. Alaska Stat. § 34.27.051.

11.3 Dynasty Term Election. The Grantor elects (choose one):
☐ This Trust shall continue as a perpetual dynasty trust for the maximum period permitted by Alaska law, the Trustee holding the power to sell, lease, and mortgage all Trust property.
☐ This Trust shall terminate upon [________________________________].

11.4 Savings Clause. Notwithstanding any other provision, any interest or power that would otherwise violate AS 34.27.051 shall vest, terminate, or be exercised no later than the last day permitted by that statute.

11.5 Distribution on Termination. On termination, the Trustee shall pay expenses and distribute the remaining Trust Estate to the then-living Beneficiaries as provided in Exhibit A, or if none, to the Grantor's heirs determined under Alaska intestacy law.

ARTICLE XII — GENERATION-SKIPPING TRANSFER (GST) PROVISIONS

12.1 GST Intent. Where the Trust benefits grandchildren or more remote descendants, the Grantor intends to allocate GST exemption under IRC §§ 2631 and 2632 so the Trust has an inclusion ratio of zero — a key advantage of an Alaska perpetual dynasty ILIT.

12.2 Allocation. The Grantor (or executor) shall allocate available GST exemption on a timely filed Form 709 (or Form 706) to each contribution. The Trustee shall provide values necessary for allocation.

12.3 Separate Trusts. The Trustee may divide the Trust into separate trusts by inclusion ratio to optimize GST treatment without altering dispositive terms.

ARTICLE XIII — TRUSTEE SUCCESSION; ALASKA SITUS

13.1 Successor Trustee. If the Initial Trustee resigns, dies, or cannot serve, the successor shall be [SUCCESSOR TRUSTEE NAME]. Any successor should preserve Alaska situs by being an Alaska-resident individual, Alaska trust company, or Alaska bank with trust powers. If no named successor will serve, a successor (an Independent and Alaska-qualified Trustee) shall be appointed by a majority of adult Beneficiaries or by a court.

13.2 Grantor Removal Power Limited. The Grantor shall have no power to remove a Trustee and appoint himself/herself or a related or subordinate party. Any reserved removal power is limited to replacing a Trustee with an Independent Trustee not related or subordinate to the Grantor within IRC § 672(c), consistent with Rev. Rul. 95-58.

13.3 Situs and Records. The Trustee shall maintain Trust records and administer the Trust in Alaska to preserve the application of Alaska law.

ARTICLE XIV — GOVERNING LAW AND GENERAL PROVISIONS

14.1 Governing Law. This Trust is governed by and construed under the laws of the State of Alaska, without regard to conflict-of-law principles.

14.2 Trustee Duties. The Trustee shall administer the Trust in good faith, prudently, and solely in the Beneficiaries' interests, and shall keep qualified beneficiaries reasonably informed.

14.3 Severability. If any provision is held invalid, the remainder shall remain in effect.

14.4 Counterparts; Electronic Signatures. This Agreement may be executed in counterparts and by electronic signature.

14.5 No Grantor Estate Tax Direction. Nothing herein shall require the Trust to pay the Grantor's estate taxes or debts in a manner causing inclusion of Policy proceeds in the Grantor's gross estate.

ARTICLE XV — EXECUTION

IN WITNESS WHEREOF, the Grantor and the Trustee have executed this Irrevocable Life Insurance Trust Agreement as of the date first written above.

ACKNOWLEDGMENT

State of Alaska )
Judicial District / Borough of [__________] )

On this ____ day of __________, 20__, before me, a Notary Public in and for said State, personally appeared [GRANTOR NAME] and [INITIAL TRUSTEE NAME], known to me (or satisfactorily proven) to be the persons whose names are subscribed to the within instrument, and acknowledged that they executed the same for the purposes therein contained.

Seal
__________________________________
Notary Public
My Commission Expires: ___________

EXHIBIT A — SCHEDULE OF LIFE INSURANCE POLICIES AND DISTRIBUTION

Policies held by the Trust:

Other initial property (e.g., seed cash): $[__________]

Distribution scheme upon the Grantor's death:

EXHIBIT B — CRUMMEY NOTICE LETTER

[TRUSTEE NAME], Trustee
[TRUST NAME]
[ADDRESS]

Date: [__/__/____]

To: [BENEFICIARY NAME] (or [PARENT/GUARDIAN] on behalf of [MINOR BENEFICIARY])
[ADDRESS]

Re: Right of Withdrawal — [GRANTOR NAME] Irrevocable Life Insurance Trust

Dear [BENEFICIARY NAME]:

As Trustee of the above Trust, I am notifying you that on [__/__/____] a contribution of $[__________] was made to the Trust.

Under the Trust Agreement, you have the right to withdraw from this contribution an amount equal to the lesser of (a) your pro-rata share of the contribution, or (b) the federal annual gift tax exclusion amount in effect for this year. Your maximum withdrawable amount for this contribution is $[__________].

To exercise this right, you must deliver a written request to me at the address above on or before [__/__/____] (the deadline, which is [30] days after the date of this notice). If I do not receive your written request by that date, your right to withdraw this contribution will lapse, and the funds will remain in the Trust.

You are not required to exercise this right. This notice is given to protect the tax treatment of the contribution.

Sincerely,

__________________________________
[TRUSTEE NAME], Trustee

Acknowledgment of Receipt (optional):
I acknowledge receiving this notice on [__/__/____].
Signature: [____________________________] ☐ I waive my withdrawal right ☐ I exercise my withdrawal right

SOURCES AND REFERENCES

Alaska Statutes:

• Alaska Stat. Title 13, ch. 36 — Trust Administration; AS 13.36.109 (specific powers of trustees) — https://www.akleg.gov/basis/statutes.asp
• Alaska Stat. § 13.36.310 — Challenges to trusts — https://law.justia.com/codes/alaska/title-13/chapter-36/article-5/section-13-36-310/
• Alaska Stat. § 34.40.110 — Restricting transfers of trust interests (spendthrift / DAPT) — https://codes.findlaw.com/ak/title-34-property/ak-st-sect-34-40-110/
• Alaska Stat. § 34.27.051 — Statutory rule against perpetuities (1,000-year) — https://law.justia.com/codes/alaska/title-34/chapter-27/article-2/section-34-27-051/
• Alaska Stat. § 34.27.100 — Suspension of the power of alienation (not suspended where trustee has power of sale)
• Alaska Stat. §§ 09.38.025, 09.38.030 — Exemption of life insurance and annuity contracts and proceeds

Federal Authority:

• 26 U.S.C. § 2042 — Proceeds of life insurance
• 26 U.S.C. § 2035 — Gifts within 3 years of death
• 26 U.S.C. §§ 2503(b)-(c) — Annual gift tax exclusion
• 26 U.S.C. § 2514 — Powers of appointment (5-and-5)
• 26 U.S.C. §§ 2601-2631 — Generation-skipping transfer tax
• Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968)
• Rev. Rul. 95-58 (grantor's limited trustee-removal power)

State Tax Note: Alaska imposes no state estate tax and no state inheritance tax (and no state income tax), which — combined with its perpetual-dynasty and asset-protection statutes — makes Alaska a favored ILIT and dynasty-trust situs. Federal estate/GST tax may still apply.