Irrevocable Life Insurance Trust (ILIT)

IRREVOCABLE LIFE INSURANCE TRUST (ILIT)

(Ohio — Governed by the Ohio Trust Code, Ohio Rev. Code Ann. Chapter 5801 et seq.)

TABLE OF CONTENTS

Article 1 — Creation, Parties, and Effective Date
Article 2 — Definitions
Article 3 — Irrevocability
Article 4 — Funding; Schedule A; No Incidents of Ownership
Article 5 — Contributions and Premium Payments
Article 6 — Crummey Withdrawal Rights
Article 7 — Trustee Powers Over Insurance
Article 8 — Distributions
Article 9 — Spendthrift Provision
Article 10 — Rule Against Perpetuities Opt-Out / Trust Duration (Dynasty)
Article 11 — Generation-Skipping Transfer (GST) Tax
Article 12 — Ohio Tax Overlay
Article 13 — Trustee Provisions and Succession
Article 14 — Governing Law and General Provisions
Article 15 — Execution

Schedule A — Insurance Policies and Initial Trust Property
Exhibit 1 — Crummey Withdrawal Notice (Form Letter)

ARTICLE 1 — CREATION, PARTIES, AND EFFECTIVE DATE

1.1 Creation. This Irrevocable Life Insurance Trust Agreement (the "Agreement") is made on [__/__/____] (the "Effective Date") between the Grantor and the Trustee identified below, who establish an irrevocable trust under the Ohio Trust Code, Ohio Rev. Code § 5801.01 et seq.

1.2 Trust Name. This Trust shall be known as the [________________________________] Irrevocable Life Insurance Trust (the "Trust").

1.3 Grantor (also "Insured").

1.4 Initial Trustee. The Grantor shall NOT serve as Trustee. The initial Trustee is:

1.5 Beneficiaries. Primary, contingent, and remainder beneficiaries are designated in Article 8 and Exhibit 1.

ARTICLE 2 — DEFINITIONS

2.1 "Code" means the Internal Revenue Code of 1986, as amended.

2.2 "Insurance Policy" or "Policy" means each life insurance policy on the Grantor's life held by the Trustee, including those listed on Schedule A and any replacement or additional policies.

2.3 "Incidents of Ownership" has the meaning given under IRC § 2042 and Treas. Reg. § 20.2042-1, including the power to change beneficiaries, surrender or cancel the Policy, borrow against it, pledge it, or assign it.

2.4 "Crummey Beneficiary" means each beneficiary granted a withdrawal right under Article 6.

2.5 "OTC" means the Ohio Trust Code, Ohio Rev. Code Chapter 5801 et seq.

2.6 "Trust Estate" means all property held under this Agreement, including insurance proceeds, income, and accretions.

ARTICLE 3 — IRREVOCABILITY

3.1 Absolute Irrevocability. This Trust is irrevocable. The Grantor expressly and permanently waives all rights and powers to alter, amend, revoke, or terminate this Trust, except as a court may order under Ohio Rev. Code §§ 5804.10 through 5804.16.

3.2 No Retained Beneficial Interest. The Grantor is not a beneficiary and retains no beneficial interest in the Trust Estate. No Trust income or principal may ever be distributed to or applied for the benefit of the Grantor.

3.3 Limited Judicial Modification. A court of competent jurisdiction may modify or terminate this Trust under the Ohio Trust Code, provided no modification restores any power or interest to the Grantor or causes estate-tax inclusion.

ARTICLE 4 — FUNDING; SCHEDULE A; NO INCIDENTS OF OWNERSHIP

4.1 Initial Funding. The Grantor transfers to the Trustee the property described on Schedule A, which may include life insurance policies and an initial cash contribution.

4.2 Trust as Owner and Beneficiary. The Trust shall be the sole owner and sole beneficiary of each Policy. The Grantor shall execute all assignments and ownership-change forms required by each insurer.

4.3 No Incidents of Ownership (IRC § 2042). The Grantor shall hold NO incidents of ownership in any Policy and shall not:

(a) Change or designate Policy beneficiaries;
(b) Surrender, cancel, or modify any Policy;
(c) Borrow against or pledge any Policy; or
(d) Exercise any economic control over any Policy.

Retention of any incident of ownership would cause the proceeds to be included in the Grantor's gross estate under IRC § 2042(2).

4.4 Three-Year Lookback (IRC § 2035). If the Grantor transfers an EXISTING Policy to this Trust and dies within three (3) years of the transfer, the proceeds will be included in the Grantor's gross estate under IRC § 2035(a).

ARTICLE 5 — CONTRIBUTIONS AND PREMIUM PAYMENTS

5.1 Additional Contributions. The Grantor or any other person may make additional irrevocable contributions to the Trust. No contribution creates any power of amendment or revocation in the Grantor.

5.2 Premium Funding. The Trustee shall apply contributions, Trust income, and policy values to pay Policy premiums. Before applying any contribution to premiums, the Trustee shall comply with the Crummey notice procedures of Article 6.

5.3 No Obligation to Contribute. The Grantor is under no binding obligation to make any contribution, and the Trustee has no duty to compel contributions.

ARTICLE 6 — CRUMMEY WITHDRAWAL RIGHTS

(IRC § 2503(b); IRC § 2514)

6.1 Withdrawal Right. Upon each contribution to the Trust, each Crummey Beneficiary may withdraw an amount equal to the lesser of:

(a) The Crummey Beneficiary's pro-rata share of the contribution; or
(b) The annual gift-tax exclusion under IRC § 2503(b) (per donee; indexed for inflation), or twice that amount for gifts the Grantor's spouse elects to split.

6.2 Notice. The Trustee shall send each Crummey Beneficiary (or a minor's parent/guardian) written notice of each contribution within a reasonable time, substantially in the form of Exhibit 1, stating the contribution amount, the withdrawal amount, and the deadline to exercise.

6.3 Withdrawal Period. A withdrawal right is exercisable for [____] days (recommended 30–45) after notice. Unexercised rights lapse at the end of the period.

6.4 Five-and-Five Limitation. In any calendar year, a Crummey Beneficiary's withdrawal right shall lapse only to the extent of the greater of (a) $5,000 or (b) 5% of the value of the Trust assets from which the withdrawal could have been satisfied (IRC § 2514(e)).

6.5 Hanging Power. Any portion of a withdrawal right that would lapse in excess of the five-and-five limitation shall NOT lapse but shall be carried forward and lapse in the earliest later year(s) within the five-and-five limit.

6.6 Records. The Trustee shall retain copies of all Crummey notices and a record of each exercise or lapse for audit defense.

ARTICLE 7 — TRUSTEE POWERS OVER INSURANCE

7.1 Policy Powers. The Trustee shall have full power to apply for, acquire, own, and maintain Policies; pay premiums; exercise policy options (conversion, exchange, dividends); collect death benefits; and litigate or settle claims against insurers.

7.2 General Powers. The Trustee shall have all powers conferred by Ohio Rev. Code § 5808.16 and the Ohio Uniform Prudent Investor Act (R.C. ch. 5809), including to invest, sell, lease, borrow, employ advisors, make tax elections, and distribute in cash or in kind.

7.3 Unlimited Power to Sell and Terminate — Perpetuities Opt-Out Requirement. The Trustee shall have UNLIMITED power to sell all Trust assets and to terminate the entire Trust. This power is required by Ohio Rev. Code § 2131.09(B)(1)(b) for the perpetuities opt-out in Article 10 to be effective.

7.4 No Duty to Pay Premiums Absent Funds. The Trustee has no personal liability to advance premiums and may allow a Policy to lapse if Trust funds are insufficient, after giving the beneficiaries reasonable notice.

ARTICLE 8 — DISTRIBUTIONS

8.1 During the Grantor's Life. The Trustee shall hold contributions and income primarily to pay premiums. The Trustee may, in its sole and absolute discretion, distribute income or principal to or among the beneficiaries (other than the Grantor) for their health, education, maintenance, and support. No beneficiary may compel a distribution during the Grantor's life.

8.2 Upon the Grantor's Death. Upon the Grantor's death, the Trustee shall collect the death benefit and hold and distribute the Trust Estate as follows:

8.3 Liquidity for the Estate (Optional). The Trustee MAY, but is not required to, purchase assets from or lend funds to the Grantor's estate on arm's-length terms to provide estate liquidity. The Trustee shall NOT be directed or obligated to pay the Grantor's estate taxes or debts.

8.4 No Distributions to Grantor. Under no circumstances shall any distribution be made to the Grantor or the Grantor's creditors.

ARTICLE 9 — SPENDTHRIFT PROVISION

(Ohio Rev. Code § 5805.01; § 5805.02)

9.1 Spendthrift Clause. The interest of each beneficiary is held subject to a spendthrift trust under Ohio Rev. Code § 5805.01, restraining both voluntary and involuntary transfer. No beneficiary may transfer any interest before actual receipt, and, except as Ohio Rev. Code ch. 5805 otherwise provides, no creditor or assignee may reach the interest or a distribution before its receipt by the beneficiary.

9.2 Statutory Exceptions. This Article is subject to the limited exceptions in Ohio Rev. Code § 5805.02 (a beneficiary's child or spouse with a support judgment, where distributions can be made for the beneficiary's support; and claims of the State of Ohio or the United States to the extent provided by law). A former spouse is NOT an exception creditor under § 5805.02(C).

9.3 Insurance-Proceeds Protection. The Grantor and Trustee acknowledge the additional creditor protection afforded life insurance and annuity proceeds under Ohio Rev. Code § 3911.10, and the exemption of life insurance for the benefit of a spouse, children, or dependents under Ohio Rev. Code § 2329.66(A)(6)(b).

ARTICLE 10 — RULE AGAINST PERPETUITIES OPT-OUT / TRUST DURATION (DYNASTY)

(Ohio Rev. Code § 2131.08; § 2131.09(B))

10.1 Express Opt-Out (R.C. § 2131.09(B)(1)(a)). The Grantor SPECIFICALLY STATES that the rule against perpetuities and the provisions of Ohio Rev. Code § 2131.08(A) SHALL NOT APPLY to this Trust. This express statement satisfies the first condition of the opt-out under Ohio Rev. Code § 2131.09(B)(1)(a).

10.2 Unlimited Power to Sell/Terminate (R.C. § 2131.09(B)(1)(b)). As required by the second condition of the opt-out, the Trustee has the unlimited power, either to sell all Trust assets or to terminate the entire Trust (Section 7.3). Accordingly, no rule of law against perpetuities or against suspension of the power of alienation shall apply to this Trust, and it MAY continue in perpetuity as a dynasty trust.

10.3 Duration Election. The Grantor elects that this Trust:

☐ Continue in perpetuity as a dynasty trust for successive generations of the Grantor's descendants; or

☐ Terminate on [________________________________] (a fixed date or stated event), at which time the Trust Estate shall be distributed under Article 8.

ARTICLE 11 — GENERATION-SKIPPING TRANSFER (GST) TAX

(IRC §§ 2601, 2631)

11.1 GST Exemption Allocation. The Grantor intends that available GST exemption be allocated to this Trust:

☐ Allocate the Grantor's entire available GST exemption to this Trust;
☐ Allocate $[________________________________]; or
☐ Make no allocation at this time (allocation on Form 709).

11.2 GST-Exempt Administration. To the extent GST exemption is allocated, the Trustee shall administer the GST-exempt portion as a separate share with an inclusion ratio of zero. Because Ohio permits perpetual trusts via the opt-out (Article 10), the GST-exempt portion may continue indefinitely.

ARTICLE 12 — OHIO TAX OVERLAY

12.1 No State Death Tax. Ohio imposes NO state estate tax (the Ohio estate tax was repealed for deaths on or after January 1, 2013) and NO inheritance tax. The Trust's primary tax purpose is to exclude the death benefit from the Grantor's FEDERAL gross estate under IRC § 2042.

12.2 Income Tax. While this Trust is a non-grantor trust, the Trustee shall obtain an EIN and file federal Form 1041 and Ohio Form IT 1041 (Fiduciary Income Tax Return) for any year the Trust has reportable income.

ARTICLE 13 — TRUSTEE PROVISIONS AND SUCCESSION

13.1 Independent Trustee. The Trustee must be independent of the Grantor. The Grantor shall not serve as Trustee, and no Trustee shall be subject to the Grantor's control.

13.2 Successor Trustees. If the initial Trustee ceases to serve, the following shall serve in order:

If no named successor is willing or able to serve, the adult beneficiaries (by majority) shall appoint a successor corporate or independent Trustee. No appointee shall be the Grantor.

13.3 Compensation. The Trustee is entitled to reasonable compensation and reimbursement of expenses from the Trust Estate.

13.4 Bond. ☐ No bond required ☐ Bond required in the amount of $[________________________________].

13.5 Accounting. The Trustee shall keep the current beneficiaries reasonably informed and provide reports consistent with Ohio Rev. Code § 5808.13.

ARTICLE 14 — GOVERNING LAW AND GENERAL PROVISIONS

14.1 Governing Law. This Agreement and the Trust are governed by the laws of the State of Ohio, without regard to conflict-of-laws principles. The Grantor intends that Ohio Rev. Code § 2131.09(B) apply to this Trust (R.C. § 2131.09(B)(2)).

14.2 Forum. Exclusive venue for proceedings concerning this Trust lies in the Probate Division of the Court of Common Pleas in [________________________________] County, Ohio.

14.3 Not a Grantor Trust for Estate Tax. Nothing in this Agreement shall be construed to grant the Grantor any power that would cause inclusion of the Trust Estate in the Grantor's gross estate under IRC §§ 2035–2042.

14.4 Severability. If any provision is held invalid, the remainder shall remain in effect and the invalid provision shall be reformed to the minimum extent necessary.

14.5 Counterparts; Electronic Signatures. This Agreement may be executed in counterparts and by electronic signature to the extent permitted by Ohio law.

ARTICLE 15 — EXECUTION

15.1 Grantor. I, the undersigned Grantor, create this irrevocable Trust under Ohio law and acknowledge that it is irrevocable and that I retain no incidents of ownership in any Policy and no beneficial interest in the Trust.

Grantor Signature: __________________________________

Printed Name: [________________________________] Date: [__/__/____]

15.2 Trustee Acceptance. I accept appointment as Trustee and agree to administer the Trust under its terms and the Ohio Trust Code.

Trustee Signature: __________________________________

Printed Name / Entity: [________________________________] Date: [__/__/____]

15.3 Notary Acknowledgment.

State of Ohio )
County of [________________________________] ) ss.

On [__/__/____], before me personally appeared [________________________________] (Grantor) and [________________________________] (Trustee), proven to me to be the persons who executed the foregoing instrument, and acknowledged the due execution of the same.

__________________________________
Notary Public
My Commission Expires: [__/__/____]

SCHEDULE A — INSURANCE POLICIES AND INITIAL TRUST PROPERTY

Initial cash contribution: $[________________________________]

EXHIBIT 1 — CRUMMEY WITHDRAWAL NOTICE (FORM LETTER)

Date: [__/__/____]

To: [________________________________] (Beneficiary)
[or Parent/Guardian of minor beneficiary [________________________________]]

Re: [________________________________] Irrevocable Life Insurance Trust — Notice of Contribution and Right of Withdrawal

Dear [________________________________]:

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 share of this contribution, up to $[________________________________], by delivering a written request to the Trustee at the address below. This right may be exercised at any time within [____] days after the date of this notice. If you do not exercise this right within that period, it will lapse (subject to the five-and-five and hanging-power provisions of the Trust).

To exercise your right, sign and return the acknowledgment below or send a written withdrawal request to: [________________________________].

Sincerely,

__________________________________
Trustee

___ I ACKNOWLEDGE receipt and DECLINE to exercise my withdrawal right.
___ I ELECT to withdraw $[____________].

Signature: __________________________________ Date: [__/__/____]

SOURCES AND REFERENCES

Ohio Authority

• Ohio Rev. Code § 5801.01 et seq. — Ohio Trust Code
• Ohio Rev. Code § 5805.01 — Spendthrift provision (validity); § 5805.02 — Enforceability and exceptions
• Ohio Rev. Code § 5808.13; § 5808.16 — Trustee duty to inform / powers
• Ohio Rev. Code § 2131.08 — Rule against perpetuities; § 2131.09(B), (C) — Opt-out and 1,000-year limit on certain powers
• Ohio Rev. Code § 3911.10 — Life/endowment insurance and annuities exempt from creditors
• Ohio Rev. Code § 2329.66(A)(6)(b) — Life insurance exemption for spouse/children/dependents

Federal Authority

• 26 U.S.C. § 2042; Treas. Reg. § 20.2042-1 — Incidents of ownership
• 26 U.S.C. § 2035 — Three-year lookback
• 26 U.S.C. § 2503(b); Treas. Reg. § 25.2503-3 — Annual exclusion / Crummey
• 26 U.S.C. § 2514(e) — Five-and-five lapse
• 26 U.S.C. §§ 2601, 2631 — GST tax and exemption
• Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968)

IRS / Ohio Forms

• Form 706; Form 709; Form 1041; Form SS-4 (EIN); Ohio Form IT 1041

THIS TEMPLATE IS PROVIDED FOR PROFESSIONAL USE ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE. CONSULT QUALIFIED OHIO COUNSEL BEFORE IMPLEMENTATION.