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An irrevocable life insurance trust (ILIT) can keep a large death benefit out of a client’s taxable estate, but only if it’s administered correctly year after year. That makes the choice of trustee one of the most important decisions in the plan. Here’s how individual and corporate trustees compare, and the duties either one must handle.

What an ILIT trustee actually has to do

Whoever serves as trustee takes on real, recurring responsibilities:

• Maintain a trust bank account and receive the grantor’s annual gifts into it
• Send timely Crummey notices informing beneficiaries of their right to withdraw contributions
• Be able to honor a withdrawal request if a beneficiary exercises it
• Pay premiums from the trust account to the carrier
• Keep records, file any required returns, and review the policy’s performance
• Collect and distribute the death benefit according to the trust terms

A properly drafted ILIT allows the trustee to buy insurance on the grantor but doesn’t require it, which helps avoid any argument that the grantor controls the policy.

The shortcut that creates risk

It’s tempting to skip the trust account and have the grantor, or the grantor’s business, pay the carrier directly. There is at least one IRS private letter ruling in which the Service recharacterized that kind of payment as income to the grantor, a gift to the trust and a premium payment by the trustee, without finding an incident of ownership. But relying on that reasoning is risky.

If annual exclusion gifts are part of the plan, the beneficiaries’ withdrawal right has to be real. When the only trust asset is the policy and cash never passes through the trust, the present interest needed for the exclusion can be challenged. Direct payments can also suggest the grantor is effectively forcing the trustee to buy coverage.

Individual trustees: pros and cons

Clients often name a sibling, adult child, friend or godparent of the beneficiaries.

• Advantages: little or no cost, personal knowledge of the family, and flexibility.
• Drawbacks: limited expertise, competing priorities, and the risk that they move, retire, become ill or simply forget to pay a premium years down the road.

An individual trustee should not be the insured, and naming a beneficiary as trustee requires careful drafting. Successor trustees should always be named.

Corporate trustees and hybrid approaches

A bank or trust company brings continuity, established procedures and objectivity, which can be valuable for large policies or families with potential conflicts. The trade-off is annual fees, sometimes subject to minimums, and a less personal relationship.

Some families split the roles: a corporate trustee handles administration while a trusted individual serves as co-trustee or trust protector. Whatever the choice, the insurance advisor isn’t legally responsible for trust administration, but an annual check that premiums, notices and records are in order is good client service. Our articles on grantor trusts and estate tax liquidity cover related planning, and our Advanced Markets team is available for trust casework.

Frequently asked questions

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.

Connect on LinkedIn →

Passing a family business to the next generation is one of the hardest things an owner will ever do. Founders often delay because the topic touches control, family relationships and their own mortality. Advisors who can open that door gently are positioned for some of the most meaningful, and largest, cases they’ll ever write.

Why succession is the biggest threat to family firms

Competition, regulation and taxes all matter, but poor succession planning is widely considered the greatest threat to a family business’s survival. Many founders approach retirement with no plan, or with a plan that won’t produce the results they want. Family business research, including work by Craig Aronoff and colleagues, has found that fewer than one-third of family businesses make it to the second generation and only about 13% to the third.

What the next generation is thinking

Owners aren’t the only ones worried. Children and other family members in the business often raise concerns like these:

• “I don’t think Dad is ever going to retire. What future does that leave me?”
• “I’m not sure I’ll ever own stock in the business. Why should I stay?”
• “How am I going to work with my siblings once the founder is gone?”

Surfacing these questions, respectfully, can motivate an owner who has been putting the conversation off.

How to open the conversation

• Start with the owner’s goals, not products: when do they want to step back, and what does success look like for the family?
• Ask about “what if” scenarios: death, disability or an unexpected offer to buy the company.
• Bring in the team: attorney, CPA and valuation professional, with you coordinating the insurance pieces.
• Use a fact finder so the owner sees the plan is built on their own information.

Where insurance fits

Once goals are clear, insurance often funds the plan: buy-sell agreements between family owners, key person coverage while successors develop, and estate liquidity so heirs don’t have to sell the business to pay estate taxes. See our articles on succession planning for family-owned businesses and estate tax liquidity.

Our Advanced Markets team can help you prepare for the first meeting and design the insurance strategy. Contact us to set up a consultation.

Frequently asked questions

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.

Connect on LinkedIn →

Business owners are always looking for ways to recruit, reward and keep key people. A Section 162 executive bonus plan is one of the simplest: the business pays for a life insurance policy the executive owns, and deducts the cost as compensation. There are no discrimination rules and no IRS approval required.

How the plan works for the employer

• Pays the agreed life insurance premium as a bonus
• Has no ownership rights in the executive’s policy
• Reports the bonus on the employee’s W-2
• Generally deducts the bonus as reasonable compensation and an ordinary business expense

How the plan works for the executive

• Is the applicant, owner and insured on the policy
• Names their own beneficiary
• Pays ordinary income tax on the bonus, unless the employer also pays a tax bonus
• Benefits from cash value accumulation and the death benefit for personal needs

Because the executive owns the policy, it’s fully portable if they leave. They can keep funding it personally.

Single vs. double bonus

With a single bonus, the executive pays tax on the premium amount. With a double bonus, the employer also pays a cash bonus to cover that tax, so the executive’s after-tax cost is zero. Our article on single vs. double bonus walks through the math.

When to consider a restricted plan

A basic 162 plan rewards key people but doesn’t tie them to the company. Employers who want “golden handcuffs” can use a restrictive endorsement or vesting schedule that limits the executive’s access to cash value until they meet service requirements. Plans can also be designed with long-term care or chronic illness benefits.

Contact our Life Sales team to design an executive bonus plan for your business owner clients.

Frequently asked questions

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.

Connect on LinkedIn →

Once a policy is in force, two things matter most: who owns it while the insured is alive, and who receives the money at death. Yet applications give those designations tiny boxes, which encourages quick answers that can cause serious tax and probate problems. A real case shows what can go wrong.

A rushed case

A business owner needed several million dollars of coverage for anticipated estate taxes. A good underwriting offer was about to expire, and no one had time to meet about structure. The day before the deadline, the instructions came in: the company would own the policy, since it was paying the premiums, and the insured’s wife would be the beneficiary.

The good news was that coverage was in force. The rest created problems.

What went wrong

• An “unholy triangle.” With the company as owner, the insured as insured and the wife as beneficiary, payment of the death benefit could be treated as a taxable distribution or transfer. Depending on how the company was taxed, it might not have been a problem, but no one thought it through.
• Estate tax exposure. Paying the benefit to the spouse increases the couple’s combined taxable estate, which defeats the purpose of coverage bought to pay estate taxes. Such policies are normally held by an irrevocable trust whose beneficiaries are the insured’s heirs.
• No contingent beneficiary. If the wife died first, the proceeds could default to the owner or to the insured’s estate, sending millions through probate with its cost, delay and publicity.

Three rules to live by

1. Use a separate page. Be ready to submit ownership and beneficiary instructions on a separate sheet that is referenced in and made part of the application.
2. Name contingents. Whenever a primary owner or beneficiary is a natural person, name contingent owners and beneficiaries.
3. Plan structure during underwriting. Settle the ownership structure, often an ILIT, while the case is being underwritten so the deadline doesn’t force a bad choice.

With the federal estate tax exemption now $15 million per person, fewer clients face estate tax, but those who do face a 40% top rate. See our articles on the $15 million exemption and beneficiary reviews.

Get help with the wording

We can help you draft clear designations for primary and contingent parties and, when needed, confirm the language with the carrier’s claims department before issue. It always works better when you think outside the box.

Frequently asked questions

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.

Connect on LinkedIn →