Tax-Efficient Liquidity, on Purpose.

ILITs & Life Insurance in Estate Planning (NJ) 

 
Life insurance should create cash and calm—not taxes and chaos. An ILIT (Irrevocable Life Insurance Trust) turns policy proceeds into estate-tax-free, creditor-resistant, instructions-driven liquidity your family can actually use.

New Jersey ILIT & Life Insurance Planning

Design, Funding, and Crummey Compliance

Design, policy review, Crummey administration, premium funding, trustee training, and coordination with pensions/benefits—built for New Jersey families, executives, and business owners.

Life insurance is often the cheapest dollar your heirs will ever see—if you set it up correctly. Done casually, it drags proceeds into your taxable estate, invites creditor claims, or hands a lump-sum to someone unprepared. Done right, an ILIT (Irrevocable Life Insurance Trust) owns the policy, receives the death benefit outside your estate, and distributes (or holds) cash under protective rules: pay estate expenses and taxes, keep the shore house, equalize inheritances among children from different marriages, fund a buy-sell, or provide lifetime support for a special-needs beneficiary—without court.

We design the trust, review the policy, set the Crummey process, open the ILIT bank account, coordinate gifts/premiums and Form 709 filings, and keep meticulous records. That’s the difference between “paper” planning and a plan that works.

What An ILIT Actually Does

  • Keeps Life Insurance Out Of Your Estate: The ILIT—not you—owns the policy and receives the death benefit, avoiding estate inclusion from “incidents of ownership.”

  • Protects Beneficiaries: Money lands in lifetime trusts using HEMS (Health, Education, Maintenance, Support) standards—creditor and divorce resistant, no 18-year-old windfalls.

  • Creates Tax-Smart Liquidity: Cash to pay estate expenses, equalize shares where the business or shore house goes to one branch, retire mortgages, or fund charitable bequests.

  • Coordinates With Everything Else: Pensions/benefits, buy-sell agreements, special-needs planning, and marital trusts (CST/QTIP/Clayton) all plug into the ILIT.

When an ILIT Makes Sense

  • Your projected estate (now or after a first death + portability) could face estate tax or needs liquidity.

  • You’re in a second or third marriage and want your spouse supported for life while preserving the remainder for your children.

  • You need to secure support (alimony/child support) post-divorce with neutral, trustee-controlled proceeds.

  • You own a business or valuable real estate and want the estate to avoid forced sales.

  • You have a special-needs or financially vulnerable beneficiary.

  • You hold employer group life that will end or shrink at retirement—an ILIT can replace/coordinate coverage.

Design & Compliance

The Pieces that Matter

Ownership & Incidents Of Ownership
The ILIT must own the policy (or receive it by assignment) and be the beneficiary. You cannot retain control over the policy or its benefits. We install a truly independent trustee (no insured as trustee) and strong spendthrift provisions.

New Policy vs. Transfer Of Existing Policy

  • New policy: ideal—no 3-year inclusion risk.

  • Existing policy assigned to an ILIT: the 3-year rule (IRC §2035) can pull the death benefit back into your estate if you die within 3 years of transfer. We may use a 1035 exchange inside the ILIT or other tactics; facts drive the choice.

Crummey Withdrawal Powers (Annual-Exclusion Gifts)
To treat premium gifts as annual-exclusion gifts, beneficiaries get present-interest rights to withdraw gifts for a short window (typically 30–60 days). We:

  • Send timely written notices (postal or e-delivery),

  • Track waivers/expirations,

  • Respect 5-and-5 limits (greater of $5,000 or 5% per powerholder), and

  • Maintain an audit-ready archive.
    If premiums exceed exclusions, we plan split gifts with a spouse and Form 709 filings; for dynasty planning we handle GST allocation and inclusion ratio.

Single Life vs. Survivorship (Second-To-Die)

  • Single life: liquidity at the first death—useful for divorce security, buy-sell, or estate needs at the first death.

  • Survivorship (SUL): typically lower premium per dollar of coverage; pays at the second death—great for estate taxes or multi-branch equalization.

Policy Type & Suitability
We don’t sell policies, but we do evaluate term, guaranteed UL, whole life, and indexed/variable designs for premium sufficiency, MEC status, loan risk, and carrier strength. We often pair ILITs with:

  • Guaranteed UL/SUL for estate liquidity certainty,

  • Whole life where stable internal buildup and potential dividends align with goals,

  • Term for court-required coverage (support) with a plan to convert/replace as needed.

Trustee Training & Administration
We open an ILIT bank account, calendar gifts and notices, and make the trustee’s job simple with checklists and scripts. Under AMP/CCP, we run the compliance so your plan stays clean.

Notes for NJ Residents

  • Inheritance Tax Classes: Spouse/lineal heirs (Class A) are exempt; siblings/nieces/nephews/friends may trigger NJ inheritance tax. ILIT distributions can be timed and structured to manage exposure.

  • Probate & Privacy: A funded plan with ILIT proceeds keeps families out of public, creditor-first probate and avoids forced asset sales.

  • Deeds & the Shore: We often pair ILIT liquidity with a shore-house charter so the family can keep (and actually enjoy) the property without fights.

Coordinating Employer Policies, Annuities & Pensions

Employer Group Life: Confirm conversion/portability when you retire or change jobs; replace declining group coverage with an ILIT-owned policy if long-term liquidity is critical. Update beneficiaries so your ILIT, not your estate, is paid.

Pensions & QJSA/QOSA: Survivor elections can leave gaps; an ILIT can backfill income for a spouse or equalize for children if survivor % is low.

Annuities: Usually not owned by ILITs, but ILIT cash can coordinate with annuity income to balance survivor budgets.

Common Mistakes We Encounter

  • Insured named as trustee (retains incidents of ownership).

  • No Crummey notices (gifts risk annual-exclusion treatment).

  • Late or missing Form 709 and GST allocations (toxic inclusion ratios).

  • Assigning an existing policy and ignoring the 3-year rule.

  • Funding premiums personally from the wrong account (breaks audit trail).

  • Letting an employer group policy lapse at retirement without a replacement plan.

  • Building a beautiful ILIT but no liquidity to pay premiums after market shocks—no premium stress test.

Process

Design → Draft → Fund → Admin → Maintain

  1. Design & Discovery Meeting (DDM): Goals, beneficiaries, existing coverage, premium budget, tax posture, and liquidity needs.

  2. Policy Review & Carrier Coordination: Suitability screen, ownership/beneficiary changes, 1035 feasibility, group-to-individual transitions.

  3. Draft & Execute: ILIT document, trustee acceptance, bank account, gift strategy, and premium calendar.

  4. Fund & Admin: Issue/assign policy, send Crummey notices, track windows, document gifts, and file Form 709 each year as needed (with your CPA/EA).

  5. Maintain: AMP (annual ILIT report, notices archive, trustee training) or CCP (quarterly advisor summits; integrates ILIT with broader tax, investment, and philanthropy calendars).

Quick FAQs

Can I be my own ILIT trustee?
No—the insured should not be trustee. We’ll help select an independent trustee (individual or corporate) and add a trust protector for course-corrections.

What if I already own a policy?
We can assign it to the ILIT, but the 3-year rule can pull proceeds back into your estate if you die within 3 years. Sometimes we apply for new coverage in the ILIT or use a 1035 exchange.

Do I need Crummey notices every year?
Yes. They’re the backbone of annual-exclusion gifts. We prepare, send, and archive them so the record is audit-ready.

Can the ILIT pay estate taxes directly?
We usually route funds via loans or purchases to avoid tainting the trust; your documents will spell out a clean path to liquidity.

What about survivorship (second-to-die) policies?
Great for pure estate liquidity at the second death. We size coverage to taxes, equalizations, and “keep the house” goals—then own it in the ILIT.

Book A Strategy Call

Book A Strategy Call. Bring your policy statements (group and individual), proposed illustrations, and beneficiary printouts. We’ll design the ILIT, verify the policy, set up gifts and Crummey administration, and coordinate with your CPA/EA and advisor—so the dollars your family needs arrive tax-efficiently, privately, and on time.

SCHEDULE A CONSULTATION