Irrevocable Life Insurance Trust (ILIT)

[TRUST NAME]

Irrevocable Life Insurance Trust (ILIT) Agreement

(Governed by the Louisiana Trust Code, La. R.S. 9:1721 et seq.)

TABLE OF CONTENTS

1. Document Header
2. Definitions
3. Irrevocability
4. Funding the Trust
5. No Incidents of Ownership (IRC § 2042)
6. Three-Year Rule (IRC § 2035)
7. Contributions and Premium Payments
8. Crummey Withdrawal Rights
9. Trustee Powers (Insurance)
10. Distributions
11. Spendthrift Provision
12. Term, Forced Heirship, and Termination
13. Generation-Skipping Transfer (GST) Provisions
14. Governing Law; Trustee Succession
15. Execution Block
16. Schedule A – Insurance Policies and Trust Property
17. Exhibit 1 – Crummey Notice Letter

1. DOCUMENT HEADER

1.1 Parties

This Irrevocable Life Insurance Trust Agreement (the "Agreement" or "Trust") is made effective as of [EFFECTIVE DATE] (the "Effective Date") by and among:

a. [GRANTOR/SETTLOR FULL LEGAL NAME], an individual domiciled in the Parish of [PARISH], State of Louisiana (the "Grantor," also referred to as "Settlor" or "Insured"); and

b. [TRUSTEE FULL LEGAL NAME], [an individual who is NOT the Grantor / a Louisiana banking or trust institution] with principal place of business at [ADDRESS] (the "Trustee").

1.2 Recitals

A. Grantor desires to create an irrevocable trust under the Louisiana Trust Code, La. R.S. 9:1721 et seq., to own one or more policies of insurance on Grantor's life so that the death benefit passes outside Grantor's gross estate under 26 U.S.C. § 2042.

B. Grantor shall not serve as Trustee and retains no incidents of ownership in any policy held by the Trust.

C. The parties intend that this Trust be a non-grantor, irrevocable trust for federal estate-tax purposes.

D. The trust instrument is executed before a Louisiana notary public and two (2) witnesses contemporaneously with this Agreement.

NOW, THEREFORE, Grantor irrevocably transfers and delivers to Trustee the property described on Schedule A (the "Trust Estate"), to be held and administered as follows.

2. DEFINITIONS

"Applicable Law" – The Louisiana Trust Code, the Louisiana Civil Code, and applicable federal tax law.

"Insurance Policy" or "Policy" – Any policy of life insurance on Grantor's life held by the Trustee, including each policy listed on Schedule A and any replacement or additional policy.

"Beneficiary" – Each person identified in Section 10 as a current or remainder beneficiary.

"Crummey Beneficiary" – Each Beneficiary granted a withdrawal right under Section 8.

"Independent Trustee" – A Trustee who is not the Grantor, not a beneficiary, and not a related or subordinate party to Grantor within the meaning of 26 U.S.C. § 672(c).

3. IRREVOCABILITY

3.1 This Trust is irrevocable. Grantor waives and relinquishes any power to revoke, amend, alter, or terminate this Trust.

3.2 Neither Grantor nor any other person shall hold any power that would cause inclusion of the Trust Estate or any Policy in Grantor's gross estate under 26 U.S.C. §§ 2036, 2038, or 2042.

3.3 Administrative amendment only. The Trustee may amend purely administrative provisions (situs, trustee succession, scrivener's errors, tax-qualification language) provided no such amendment confers any benefit or power on Grantor or reduces any Beneficiary's vested interest.

4. FUNDING THE TRUST

4.1 Initial funding. Grantor transfers to the Trustee the Policy or Policies and other property described on Schedule A. The Trustee accepts the Trust Estate.

4.2 Assignment or purchase. Existing Policies are transferred by absolute assignment on the insurer's form. New Policies should be applied for, owned, and paid for by the Trustee from inception to avoid the three-year rule (Section 6).

4.3 Insurable interest. Under the Louisiana Trust Code, a settlor may create a trust upon the proceeds of life insurance (La. R.S. 9:1791 et seq.); the Trustee holds an insurable interest in Grantor's life as beneficial owner.

5. NO INCIDENTS OF OWNERSHIP (IRC § 2042)

5.1 Grantor retains NO incident of ownership in any Policy. Grantor may not change beneficiaries, surrender, borrow against, pledge, assign, or otherwise control any Policy.

5.2 The Trustee holds all rights in each Policy. The power to pay premiums is distinguished from the prohibited power of control; the Trustee's payment of premiums does not constitute an incident of ownership in Grantor.

5.3 If the Trustee is or becomes the Grantor's spouse or a beneficiary, the Trustee shall not exercise discretionary distribution powers over insurance proceeds except under an ascertainable standard, to avoid inclusion under 26 U.S.C. §§ 2041 or 2042.

6. THREE-YEAR RULE (IRC § 2035)

6.1 If Grantor transfers an existing Policy to this Trust and dies within three (3) years of the transfer, the death benefit may be included in Grantor's gross estate under 26 U.S.C. § 2035(a).

6.2 Mitigation. Policies the Trustee applies for, owns, and funds from inception are not subject to § 2035 exposure. Grantor should avoid transferring existing Policies within three years of expected death where the timeline is known.

7. CONTRIBUTIONS AND PREMIUM PAYMENTS

7.1 Grantor may, but is not obligated to, contribute cash to the Trust sufficient to pay premiums. No contribution restores any power to Grantor.

7.2 Before applying any contribution to premiums, the Trustee shall give each Crummey Beneficiary written notice as provided in Section 8 (see Exhibit 1).

7.3 The Trustee shall maintain a separate Trust bank account, pay premiums from Trust funds, and keep records of all contributions, notices, and lapses.

8. CRUMMEY WITHDRAWAL RIGHTS (IRC §§ 2503(b), 2514)

8.1 Grant of right. Upon each contribution, each Crummey Beneficiary may withdraw his or her proportionate share of that contribution, up to the greater of the amounts in Section 8.4, by written demand to the Trustee.

8.2 Notice. The Trustee shall send written notice (Exhibit 1) to each Crummey Beneficiary (or the legal/natural tutor of a minor) within [____] days of each contribution, stating the amount contributed, the withdrawal right, and the deadline.

8.3 Exercise period; lapse. The withdrawal right is exercisable for [____] days (not fewer than 30) after notice. Any right not exercised lapses at the end of the period.

8.4 Maximum withdrawal. The withdrawal amount for each Crummey Beneficiary equals the lesser of (a) such Beneficiary's proportionate share of the contribution, or (b) the annual gift-tax exclusion under 26 U.S.C. § 2503(b) ($[____] per donor in [____]).

8.5 Five-and-five / hanging power. To prevent a lapse from being a taxable gift by the Beneficiary under 26 U.S.C. § 2514(e), each lapse in any calendar year is limited to the greater of $5,000 or 5% of the Trust corpus. Any withdrawal right exceeding that amount does not lapse but carries forward (a "hanging power") until it can lapse within the 5-and-5 limit.

9. TRUSTEE POWERS (INSURANCE)

The Trustee, in addition to all powers under the Louisiana Trust Code, may:
(a) Apply for, acquire, own, and hold Policies on Grantor's life;
(b) Pay premiums from Trust income, principal, or contributions;
(c) Receive dividends, exercise non-forfeiture options, and elect settlement options;
(d) Collect death proceeds and grant releases to insurers;
(e) Borrow against, surrender, exchange (§ 1035), or convert a Policy when prudent;
(f) Invest and reinvest Trust assets as a prudent fiduciary;
(g) Employ counsel, accountants, and advisors and pay them from the Trust.

The Trustee has no duty to diversify away from the Policy and may hold a single Policy as the primary Trust asset.

10. DISTRIBUTIONS

10.1 During Grantor's Lifetime

The Trustee shall prioritize premium payment and may, in its discretion, distribute income or principal to Beneficiaries (other than Grantor) for health, education, maintenance, and support. No distribution of any kind may be made to Grantor.

10.2 Upon Grantor's Death

The Trustee shall collect the death proceeds and hold or distribute them as follows:

10.3 Liquidity (Optional)

The Trustee may, but is not required to, purchase assets from or lend to Grantor's succession/estate on arm's-length terms to provide liquidity. The Trustee shall not be directed to pay Grantor's debts or estate taxes, which could cause estate inclusion.

11. SPENDTHRIFT PROVISION

No Beneficiary may voluntarily or involuntarily transfer, assign, or encumber any interest in the Trust, and no interest is subject to the claims of a Beneficiary's creditors before actual receipt, to the fullest extent permitted by the Louisiana Trust Code, including La. R.S. 9:2004 (spendthrift trust). Life insurance proceeds and avails held in or paid to the Trust are further protected against creditors under La. R.S. 22:912.

12. TERM, FORCED HEIRSHIP, AND TERMINATION

12.1 Trust term (Louisiana Trust Code). This Trust shall continue for the maximum term permitted by La. R.S. 9:1831–9:1833. Louisiana does NOT apply the common-law rule against perpetuities; the duration of a Louisiana trust is fixed by the Trust Code term rules, which generally permit the trust to last until the death of the last income or principal beneficiary who is a natural person, subject to the limits and reductions of those sections.

12.2 Forced heirship. Grantor acknowledges that La. Civ. Code art. 1493 reserves a legitime to forced heirs (descendants who, at Grantor's death, are 23 years of age or younger, or who are permanently incapable of caring for their person or estate). Dispositions under this Trust are subject to the forced-heirship rights of any forced heir. Life insurance proceeds are generally treated as exempt from the claims of forced heirs, but the Trust must be coordinated with Grantor's overall succession plan.

12.3 Termination. Upon the later of the term limit or distribution of all proceeds under Section 10, the Trust terminates and the Trustee distributes any remaining Trust Estate to the then-living Beneficiaries, or, if none, to Grantor's descendants by roots (per stirpes), and if none, as Louisiana intestacy would provide.

13. GENERATION-SKIPPING TRANSFER (GST) PROVISIONS

13.1 If the Trust is intended as a multi-generational (dynasty) trust, Grantor or Grantor's representative shall allocate GST exemption (26 U.S.C. §§ 2631, 2632) to contributions on a timely Form 709.

13.2 The Trustee shall, where advantageous, maintain separate shares to preserve an inclusion ratio of zero and shall consult tax counsel before any distribution that could trigger GST tax under 26 U.S.C. § 2601.

14. GOVERNING LAW; TRUSTEE SUCCESSION

14.1 Governing law. This Trust is governed by the laws of the State of Louisiana, including the Louisiana Trust Code, without regard to conflict-of-laws rules.

14.2 Trustee succession. The initial Trustee is [TRUSTEE NAME]. If the Trustee resigns, dies, or becomes incapacitated, the successor Trustee is [SUCCESSOR TRUSTEE NAME]. Grantor shall never serve as Trustee. No Beneficiary holding a Crummey power shall serve as sole Trustee with discretion over that Beneficiary's interest. A majority of adult Beneficiaries may appoint an Independent successor Trustee if no named successor will serve.

15. EXECUTION BLOCK

IN WITNESS WHEREOF, the parties have executed this Agreement before the undersigned notary and witnesses on the Effective Date.

WITNESSES
1. _______________________________
2. _______________________________

NOTARY PUBLIC
Sworn to and subscribed before me this ____ day of __________, 20____, in the Parish of [PARISH], State of Louisiana.

_______________________________
Notary Public — Notary/Bar ID No.: ____________
My commission expires: ____________

EIN of Trust (once obtained): [____________]

16. SCHEDULE A – INSURANCE POLICIES AND TRUST PROPERTY

17. EXHIBIT 1 – CRUMMEY NOTICE LETTER

[DATE]

To: [BENEFICIARY NAME] (or [TUTOR/GUARDIAN] on behalf of minor [NAME])
Re: Right of Withdrawal — [TRUST NAME] Irrevocable Life Insurance Trust

Dear [NAME]:

As Trustee of the above Trust, I notify you that on [__/__/____] a contribution of $[____] was made to the Trust. Under the Trust Agreement, you have the right to withdraw your proportionate share of this contribution, up to $[____] (the annual gift-tax exclusion under IRC § 2503(b)).

To exercise this right, deliver a written demand to the Trustee at [ADDRESS] within [____] days of the date of this notice (no later than [__/__/____]). If you do not exercise this right within that period, it will lapse to the extent permitted by the 5-and-5 limit of IRC § 2514(e); any excess will carry forward as a hanging power.

Sincerely,
_______________________________
[TRUSTEE NAME], Trustee

Acknowledgment of Receipt: I acknowledge receipt of this notice on [__/__/____].
_______________________________ (Beneficiary / Tutor)

SOURCES AND REFERENCES

Louisiana Statutes & Civil Code:

• La. R.S. 9:1721 et seq. — Louisiana Trust Code — https://legis.la.gov
• La. R.S. 9:1831–9:1833 — Term/duration of trust
• La. R.S. 9:1791 et seq. — Trust upon proceeds of life insurance
• La. R.S. 9:2004 — Spendthrift trust
• La. R.S. 22:912 — Exemption of proceeds; life, endowment, annuity — https://law.justia.com/codes/louisiana/revised-statutes/title-22/rs-22-912/
• La. Civ. Code art. 1493 — Forced heirship

Federal Authority:

• 26 U.S.C. §§ 2035, 2042 — three-year rule; proceeds of life insurance
• 26 U.S.C. §§ 2503(b), 2514 — annual exclusion; Crummey powers / lapse
• 26 U.S.C. §§ 2601, 2631, 2632 — GST tax and exemption allocation
• Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968)
• IRS Forms 706, 709, 1041, SS-4

Tax note: Louisiana repealed its standalone estate/inheritance tax; Louisiana imposes no separate state estate tax (the former tax was tied to the repealed federal state-death-tax credit). Federal estate tax and the forced-heirship/civil-law overlay remain the primary concerns. Verify current status with Louisiana counsel.