Irrevocable Life Insurance Trust (ILIT)

IRREVOCABLE LIFE INSURANCE TRUST (ILIT)

(Rhode Island – Professionally-Drafted Template)

RHODE ISLAND ESTATE TAX ALERT. Rhode Island imposes a state estate tax under R.I. Gen. Laws § 44-22, with a threshold far below the federal exemption. For decedents dying in 2026, the credit ($87,940) exempts the first $1,838,056 of the estate (2025: $1,802,431); the threshold is adjusted annually for inflation. Top marginal rate is approximately 16%. Life insurance owned by the insured is included in the Rhode Island (and federal) taxable estate. A properly structured ILIT removes the death benefit from both the Rhode Island and the federal taxable estate. Confirm exposure with tax counsel.

TABLE OF CONTENTS

1. Section I – Document Header
2. Section II – Definitions
3. Section III – Creation, Irrevocability & Funding
4. Section IV – No Incidents of Ownership; Three-Year Rule
5. Section V – Contributions, Premiums & Crummey Withdrawal Rights
6. Section VI – Trustee Powers (Including Insurance Powers)
7. Section VII – Distributions
8. Section VIII – Spendthrift Protection
9. Section IX – Perpetuities, Duration & Termination
10. Section X – Generation-Skipping Transfer Tax
11. Section XI – Trustee Succession & Administration
12. Section XII – General Provisions
13. Section XIII – Governing Law
14. Section XIV – Execution Block
15. Exhibit A – Schedule A (Trust Property / Insurance Policies)
16. Exhibit B – Crummey Withdrawal Notice (Form)

SECTION I. DOCUMENT HEADER

1.1 Title and Parties
This Irrevocable Life Insurance Trust Agreement (the "Agreement" or "Trust Instrument") is made effective as of [__/__/____] (the "Effective Date") by and between [GRANTOR FULL LEGAL NAME], an individual residing at [________________________________] ("Grantor" or "Insured"), and [TRUSTEE FULL LEGAL NAME], whose principal address is [________________________________] ("Trustee").

1.2 Trust Name
The Trust shall be known as the "[GRANTOR NAME] Irrevocable Life Insurance Trust dated [__/__/____]."

1.3 Recitals
A. Grantor desires to create an irrevocable trust under the laws of the State of Rhode Island to acquire, own, and hold one or more policies of insurance on the Grantor's life, and to hold the proceeds for the Beneficiaries.
B. Grantor intends that any policy proceeds be excluded from the Grantor's gross estate for both federal estate tax purposes (IRC § 2042) and Rhode Island estate tax purposes (R.I. Gen. Laws § 44-22), and that no incident of ownership be retained by the Grantor.
C. Trustee is willing to accept the Trust and administer it under this Agreement and applicable Rhode Island trust law (R.I. Gen. Laws Title 18).

NOW, THEREFORE, in consideration of the mutual covenants herein and the delivery of the property described in Schedule A, the parties agree as follows:

SECTION II. DEFINITIONS

"Beneficiary(ies)" – The persons identified in Section II and Schedule A entitled to distributions, with any successor or remainder beneficiaries.

"Crummey Withdrawal Right" – The limited, noncumulative power of withdrawal under Section 5.3, exercisable for [____] days (recommended 30–45) after written notice of a contribution.

"Grantor" / "Insured" – The person establishing this Trust, identified in Section I.

"Independent Trustee" – A Trustee who is not the Grantor, not the Grantor's spouse, and not a "related or subordinate party" to the Grantor within IRC § 672(c).

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

"Primary Beneficiaries" – [________________________________]; [________________________________].

"Contingent Beneficiaries" – [________________________________]; [________________________________].

"Trust" / "Trust Estate" – All property transferred to the Trustee, with all additions, proceeds, reinvestments, and income.

"Trustee" – The person or entity serving as trustee, including any successor or co-trustee.

SECTION III. CREATION, IRREVOCABILITY & FUNDING

3.1 Creation; Irrevocability
(a) Grantor hereby irrevocably transfers and delivers to the Trustee the property described in Schedule A (Exhibit A), receipt of which the Trustee acknowledges.
(b) This Trust is IRREVOCABLE. The Grantor expressly and unconditionally waives all rights to alter, amend, revoke, or terminate this Trust and retains no reversionary interest.

3.2 Grantor Shall Not Serve as Trustee
The Grantor shall not serve as Trustee or co-Trustee. Administration shall at all times be vested in an Independent Trustee to avoid inclusion of Trust property in the Grantor's gross estate under IRC §§ 2036, 2038, and 2042.

3.3 Initial and Additional Property
Grantor or any third party may, with the Trustee's consent, transfer additional property (including policies and premium cash) to the Trust at any time. All such property becomes Trust Estate. No contribution shall create in the Grantor any power to amend, revoke, or control this Trust.

SECTION IV. NO INCIDENTS OF OWNERSHIP; THREE-YEAR RULE

4.1 No Retained Incidents of Ownership (IRC § 2042)
The Grantor retains no incident of ownership in any Policy, including no power to change beneficiaries, surrender or assign the Policy, borrow against or pledge it, or revoke an assignment. All incidents of ownership are vested exclusively in the Trustee.

4.2 Three-Year Lookback (IRC § 2035)
If an existing Policy already owned by the Grantor is transferred to this Trust and the Grantor dies within three (3) years, the proceeds may be pulled back into the Grantor's gross estate under IRC § 2035(a) — and therefore into the Rhode Island taxable estate as well. To avoid this, the Trustee should originally apply for and acquire new Policies directly.

4.3 Prohibition on Grantor Benefit
No income or principal shall ever be paid to, or applied for the benefit of, the Grantor, the Grantor's estate, or the Grantor's creditors, and the Trustee shall not use Trust property to discharge any legal obligation of the Grantor.

SECTION V. CONTRIBUTIONS, PREMIUMS & CRUMMEY WITHDRAWAL RIGHTS

5.1 Premium Funding
The Trustee may apply contributions and trust income to pay Policy premiums. The Grantor has no obligation to contribute, and no premium is enforceable against the Grantor.

5.2 Notice of Contribution
Promptly upon receipt of any contribution, the Trustee shall give written notice (substantially in the form of Exhibit B) to each Beneficiary holding a Crummey Withdrawal Right (or the guardian of a minor or incapacitated Beneficiary), stating the amount, the right to withdraw, and the deadline.

5.3 Crummey Withdrawal Right (IRC §§ 2503(b), 2514)
Upon each contribution, each designated Beneficiary shall have the right, exercisable by written demand within [____] days after notice, to withdraw that Beneficiary's pro rata share, up to the lesser of:
(a) the Beneficiary's pro rata share of the contribution; or
(b) the annual per-donee gift-tax exclusion under IRC § 2503(b) ($19,000 for 2025; doubled if the Grantor's spouse elects gift-splitting).

5.4 Lapse; Five-and-Five Limitation; Hanging Power
(a) A withdrawal right not exercised within the notice period lapses.
(b) 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 against which the right could be satisfied.
(c) Hanging Power. Any excess over the 5-and-5 amount does not lapse but carries over and lapses only as it later falls within the 5-and-5 limitation.

5.5 Records
The Trustee shall retain all Crummey notices, demands, and lapse records for the life of the Trust and at least three (3) years thereafter.

SECTION VI. TRUSTEE POWERS (INCLUDING INSURANCE POWERS)

6.1 General Powers
The Trustee shall have all powers granted to trustees under Rhode Island law, exercisable without court order, including powers to invest, reinvest, sell, lease, borrow, employ professionals, and allocate between principal and income.

6.2 Insurance Powers
The Trustee may: (a) apply for, acquire, and accept Policies on the Grantor's life; (b) pay premiums from Trust assets; (c) exercise or decline any policy option, dividend election, or nonforfeiture provision; (d) borrow against, pledge, surrender, or exchange a Policy; (e) collect proceeds; and (f) execute releases and receipts. The Trustee has no duty to pay premiums except from Trust assets and is not liable for a Policy lapse caused by insufficient funds.

6.3 No Duty to Diversify
The Trustee may hold Policies as the sole or principal Trust asset and is relieved of any duty to diversify with respect to them.

SECTION VII. DISTRIBUTIONS

7.1 During the Grantor's Lifetime
Subject to the Crummey rights above, the Trustee may distribute or accumulate net income for the health, education, maintenance, and support ("HEMS") of the Beneficiaries (other than the Grantor), prioritizing liquidity for premiums. No Beneficiary may compel a distribution during the Grantor's lifetime.

7.2 Upon the Grantor's Death
Upon the Grantor's death, the Trustee shall collect the Policy proceeds and distribute the Trust Estate as follows:

7.3 Liquidity for the Grantor's Estate (Discretionary)
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 liquidity for Rhode Island and federal estate taxes. The Trustee shall not be directed or obligated to pay the Grantor's debts or taxes, as such obligation could cause estate inclusion.

SECTION VIII. SPENDTHRIFT PROTECTION

8.1 Spendthrift Clause
To the maximum extent permitted by Rhode Island law (including R.I. Gen. Laws § 18-4-27), no interest of any Beneficiary in income or principal shall be subject to voluntary or involuntary transfer, assignment, pledge, anticipation, attachment, garnishment, execution, or the claims of any creditor before actual receipt by the Beneficiary.

8.2 Insurance Proceeds Exemption (R.I. Gen. Laws § 27-4-11)
Independent of the spendthrift clause, under R.I. Gen. Laws § 27-4-11, a lawful beneficiary or assignee of a life insurance policy (other than the insured or the insured's executors or administrators) is entitled to the proceeds and avails of the policy as against the creditors and representatives of the insured, whether or not the right to change the beneficiary is reserved, subject only to the statutory exception for premiums paid with intent to defraud creditors.

SECTION IX. PERPETUITIES, DURATION & TERMINATION

9.1 No Rule Against Perpetuities (Perpetual / Dynasty Trust)
Under R.I. Gen. Laws § 34-11-38, the common-law rule against perpetuities "shall no longer be deemed to be in force and/or of any effect in this state," and that abolition applies to both legal and equitable interests. Accordingly, this Trust may continue in perpetuity as a dynasty trust and is not required to vest or terminate within any common-law perpetuities period.

9.2 Optional Savings Clause

☐ The Trust shall continue in perpetuity as permitted by R.I. Gen. Laws § 34-11-38.
☐ Notwithstanding Section 9.1, the Trust shall terminate no later than twenty-one (21) years after the death of the last survivor of the Grantor's descendants living on the Effective Date.

9.3 Termination & Final Distribution
On termination (if any), the Trustee shall pay all expenses and taxes and distribute the remaining Trust Estate to the then-living Beneficiaries as provided in Section 7.2, or, if none survive, to the persons who would take the Grantor's estate under Rhode Island intestacy law (and never to the Grantor or the Grantor's estate).

SECTION X. GENERATION-SKIPPING TRANSFER TAX

10.1 GST Planning
The Grantor may allocate GST exemption (IRC §§ 2601, 2631) to contributions on a timely filed Form 709 so the Trust has an inclusion ratio of zero, allowing this dynasty trust to benefit successive generations free of GST tax. The Trustee shall cooperate with the Grantor's tax advisor in making and documenting such allocations.

SECTION XI. TRUSTEE SUCCESSION & ADMINISTRATION

11.1 Initial Trustee
The initial Trustee is: [________________________________].

11.2 Successor Trustee
If the initial Trustee dies, resigns, or becomes unable or unwilling to serve, the successor Trustee shall be: [________________________________]. If none is available, a majority in interest of the adult Beneficiaries may appoint a successor Independent Trustee. The Grantor shall have no power to appoint himself or herself as Trustee.

11.3 Accounting
The Trustee shall keep the Beneficiaries reasonably informed and shall furnish a written annual report to the current income Beneficiaries.

11.4 Indemnification
To the fullest extent permitted by Rhode Island law, the Trustee shall be indemnified out of the Trust Estate against any claim, liability, or expense arising from administration, except for the Trustee's gross negligence, willful misconduct, or bad faith.

SECTION XII. GENERAL PROVISIONS

12.1 No Amendment by Grantor; Limited Administrative Amendment
The Grantor may not amend or revoke this Trust. The Trustee may make administrative amendments solely to correct scrivener's errors or conform to tax/trust law, provided no amendment benefits the Grantor or impairs the estate-tax-exclusion objective.

12.2 Severability
If any provision is held invalid, the remaining provisions continue in force and shall be construed to carry out the Grantor's intent that Policy proceeds be excluded from both the Rhode Island and federal taxable estates.

12.3 Counterparts; Electronic Signatures
This Agreement may be executed in counterparts, each an original; electronically transmitted signatures are deemed originals.

SECTION XIII. GOVERNING LAW

This Agreement shall be governed by the laws of the State of Rhode Island, without regard to conflict-of-laws principles. Exclusive venue for proceedings concerning this Trust shall lie in the Probate Court of the City/Town of [________], Rhode Island, or the Superior Court for [COUNTY] County, as applicable.

SECTION XIV. EXECUTION BLOCK

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

Trust EIN (once obtained): [________________________________]

ACKNOWLEDGMENT (Notary)

State of Rhode Island )
County of _________ ) ss.

On this ____ day of __________, 20____, before me, the undersigned Notary Public, personally appeared [GRANTOR NAME] and [TRUSTEE NAME], personally known to me or proved to me on the basis of satisfactory evidence to be the individuals whose names are subscribed to this instrument, and acknowledged that they executed the same for the purposes therein contained.

____________________________
Notary Public
My Commission Expires: __________

EXHIBIT A — SCHEDULE A (TRUST PROPERTY / INSURANCE POLICIES)

Initial cash contribution: $[____]

Insurance Policies on the Grantor's life:

Other property: [________________________________]

Grantor: ______________________ Date: [__/__/____]
Trustee: ______________________ Date: [__/__/____]

EXHIBIT B — CRUMMEY WITHDRAWAL NOTICE (FORM)

[GRANTOR NAME] Irrevocable Life Insurance Trust dated [__/__/____]

Date: [__/__/____]

To: [BENEFICIARY NAME] (or [Parent/Guardian] of [MINOR BENEFICIARY NAME])
[________________________________]

Re: Notice of Contribution and Right of Withdrawal

Dear [____]:

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 your share of this contribution, in an amount up to the lesser of your pro rata share or $[____] (the annual gift-tax exclusion amount).

You may exercise this right by delivering a written demand to the Trustee at the address below on or before [__/__/____] (which is [____] days from the date of this notice). If the Trustee does not receive your written demand by that date, your right to withdraw this contribution will lapse, subject to the "hanging power" provisions of the Trust.

You are not required to exercise this right. This notice is given to satisfy Crummey v. Commissioner and IRC §§ 2503(b) and 2514.

Trustee: ______________________
Address: [________________________________]

Acknowledgment of Receipt (optional):
I acknowledge receipt of this notice on [__/__/____] and ☐ elect to withdraw / ☐ waive my right to withdraw this contribution.

Beneficiary: ______________________ Date: [__/__/____]

SOURCES AND REFERENCES

Rhode Island Statutes

• R.I. Gen. Laws Title 18 (Fiduciaries / trusts) — https://webserver.rilegislature.gov/Statutes/TITLE18/INDEX.htm
• R.I. Gen. Laws § 18-9.2-1 et seq. (Qualified Dispositions in Trust Act)
• R.I. Gen. Laws § 18-4-27 (Validity of trusts) — https://webserver.rilegislature.gov/Statutes/TITLE18/18-4/18-4-27.htm
• R.I. Gen. Laws § 34-11-38 (Rule against perpetuities reform) — https://webserver.rilegislature.gov/Statutes/TITLE34/34-11/34-11-38.htm
• R.I. Gen. Laws § 27-4-11 (Proceeds of policy as against creditors) — https://law.justia.com/codes/rhode-island/title-27/chapter-27-4/section-27-4-11/
• R.I. Gen. Laws § 44-22 (Rhode Island estate tax) — https://webserver.rilegislature.gov/Statutes/TITLE44/44-22/INDEX.htm

Federal Authority

• 26 U.S.C. § 2035; § 2042; § 2503(b); § 2514; §§ 2601, 2631
• Treas. Reg. § 20.2042-1; Treas. Reg. § 25.2503-3
• Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968)
• IRS Forms 706, 709, 1041, SS-4; RI Form RI-100 (Estate Tax Return)

State Death Tax Note: Rhode Island imposes a state estate tax (R.I. Gen. Laws § 44-22) with an inflation-adjusted threshold: $1,838,056 for 2026 deaths (credit $87,940); $1,802,431 for 2025. Top rate approximately 16%. An ILIT removes the death benefit from the Rhode Island taxable estate as well as the federal estate.