Many large life insurance cases are meant to be owned by an irrevocable trust, and the trust is often the last piece to come together. Clients understandably don’t want to pay for a trust until they know they’re insurable. That leaves advisors managing a carrier deadline they don’t fully control.
Key takeaways
- Underwriting can start before the trust exists by listing the owner and beneficiary as “trust TBD” and submitting a corrected application before issue.
- If the trust isn’t ready at delivery, having the insured own the policy and later sell it to a grantor trust avoids the three-year look-back and transfer-for-value problems.
- Using a “surrogate owner” who later gifts the policy is risky and can create gift or estate tax exposure.
The best fix is prevention: once a medical offer makes the trust necessary, hire an attorney who commits in writing to a timeline.
How trust-owned cases usually unfold
The typical sequence looks like this:
- The client applies and waits for an offer before spending money on legal work.
- Once the offer arrives, the client meets with an attorney to decide what they want.
- The attorney drafts the trust, often slower than anyone expected.
- The carrier’s offer deadline approaches, and the trust still isn’t signed.
Sometimes an extension buys time. Sometimes it doesn’t. Planning for this from the start keeps a good offer from slipping away.
Starting underwriting before the trust exists
There’s no need to wait for the trust to begin processing and underwriting. Have the proposed insured (who will also be the trust’s grantor) sign the application as insured, and show the owner and beneficiary as “trust TBD.”
Because the application becomes part of the policy, a new ownership page (Part I) will be needed before issue, once the trust is established. The trustee signs as owner and the trust is named as beneficiary.
If the trust isn’t done by the delivery deadline
Two common approaches come up when the deadline arrives first:
- Insured owns, then sells to a grantor trust. The insured accepts the policy personally and later sells it to the trust. Because it’s a sale rather than a gift, the three-year look-back for gifted policies doesn’t apply, and because the buyer is a grantor trust, transfer-for-value is generally not an issue. Our article on grantor trusts explains why.
- Surrogate owner who later gifts the policy. Someone else owns the policy temporarily and is expected to gift it to the trust. This is risky: nothing guarantees the surrogate will make the gift, and if the insured dies early the proceeds may not end up where intended. Gift or estate tax consequences can follow.
Either path should be reviewed with the client’s attorney and tax advisor before delivery.
Preventing the problem in the first place
As soon as a medical offer makes the trust necessary, encourage the client to engage an estate planning attorney who will confirm in writing that the documents will be ready in time. Share the carrier’s delivery deadline with the attorney early.
Our Advanced Markets team helps with cases involving insurance in all types of trusts, including irrevocable, revocable, charitable and special needs trusts. Contact us before the deadline gets tight.
Frequently asked questions
Can I submit a life insurance application before the ILIT is signed?
Yes. The insured can sign as proposed insured with owner and beneficiary shown as “trust TBD.” A corrected ownership section is submitted once the trust exists and before the policy is issued.
Does selling a policy to a grantor trust trigger the three-year rule?
The three-year look-back applies to gifted policies. A bona fide sale to the insured’s grantor trust generally avoids it, and the grantor trust exception typically avoids transfer-for-value. Confirm with counsel.
Why is a surrogate owner risky?
The surrogate has legal ownership and no binding obligation to gift the policy on time. If the insured dies first, the proceeds may go to the wrong party and create gift or estate tax problems.
Reviewed by Tim Fuller on 2026-09-26
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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