ILIT Trustee Duties: The Job, and What the Courts Expect
Written and reviewed by Hans Goldstein, licensed insurance producer, NPN 20602398 · CA Insurance License #4273294Last reviewed · Published October 3, 2026
The annual job
- Receive gifts into the trust account and send Crummey notices.
- Pay premiums from the trust account after withdrawal windows close.
- Request an in-force illustration at least yearly; for indexed or universal life, check the guaranteed and midpoint columns.
- Compare the policy's projected lapse age with the insured's life expectancy; act early if it is short.
- Keep records: notices, acknowledgments, bank statements, illustrations, and notes of decisions and advice.
- Coordinate with the CPA on Form 709 gift and GST allocations.
- Communicate with beneficiaries as the trust requires.
Video: ILIT Trustee Duties in about 2 minutes
1 min 45 sec video. AI narration of this page, accuracy-checked against the review; the tables on this page are the current source. Education, not personal advice.
Video transcript
Short answer. An ILIT trustee owns the policy for the trust, collects gifts, sends Crummey notices, pays premiums, keeps records, and monitors whether the policy will last. Let's look at what the courts have said, starting with In re Stuart Cochran Irrevocable Trust, which was decided as of March 2nd, 2009. Okay, what's the story there? So the Trustee noticed their variable policies were underperforming. And following an expert consultant's advice, they actually swapped them for a guaranteed no-lapse John Hancock policy. Let me just jump in real quick. Whenever we mention guaranteed policies like that John Hancock one, remember that any guarantee is backed by the financial strength and claims-paying ability of the issuing insurance company. Right, very important caveat. But here is the crazy part of that case. The new policy had a much smaller death benefit, $2.79 million compared to the original, which was about $8 million. Wait, wow. That is a massive drop in the payout. And didn't the person who set up the Trust die right after that? Yeah, within the year. Ouch. So did the court hammer the Trustee for that? Actually, no. The court backed the Trustee. They explicitly noted that hindsight isn't the legal test when you are relying on expert advice. Who can actually serve as Trustee? Right, who do you pick? First rule, never the insured person. If you control your own policy, that pulls the proceeds right back into your estate under IRC 2042. Right, defeating the whole purpose. Exactly. Now, a spouse or adult child is inexpensive, but a professional Trustee costs more and brings continuity.
What the courts have said
ILIT trustee cases
| Case | What happened | Takeaway |
|---|---|---|
| In re Stuart Cochran Irrevocable Trust, 901 N.E.2d 1128 (Ind. Ct. App. 2009) | Trustee replaced underperforming variable policies with a paid-up guaranteed policy on a consultant's advice; the insured died within a year | Choosing a reasonable option on expert advice met the prudent investor standard; hindsight is not the test |
| French v. Wachovia Bank, 722 F.3d 1079 (7th Cir. 2013) | Trustee replaced two $5M whole life policies with no-lapse guaranteed UL, saving about $620,000 of premium, while an affiliate earned a commission | Affirmed for the trustee because the trust waived the conflict; good faith still required |
| Rafert v. Meyer, 290 Neb. 219 (2015) | Attorney-trustee let $8.5M of policies lapse without telling beneficiaries | An exculpatory clause does not protect bad faith or reckless indifference |
Sources: Cochran (CourtListener); French v. Wachovia (CourtListener); Rafert v. Meyer (Justia).
Serving as a trustee?
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Who can serve
- Not the insured: any power over the policy is an incident of ownership that pulls proceeds into the estate (IRC 2042).
- A spouse or adult child: common and inexpensive; needs to be organized and willing to follow the calendar.
- A professional or corporate trustee: costs more; brings process, records and continuity.
Why policy choice makes the trustee's life easier
A guaranteed UL with a premium schedule gives a trustee one job: pay on time. An indexed policy gives more potential and more monitoring duty. GUL vs IUL in a trust. Hans provides trustees with an annual review of the in-force illustration on request.
Projected over the exemption, or own property in an estate-tax state?
Send a net worth range and your state. Within one business day you get a plain-English read on whether an ILIT is worth discussing with your attorney, and the policy design that would fit.
Rather talk it through? Or book 15 minutes on Hans’s calendar, or call 213-414-2808.
Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer
Frequently asked questions
Sources
- In re Stuart Cochran Irrevocable Trust (KeyBank, N.A.), Ind. Ct. App., Mar. 2, 2009: after VUL policies in an ILIT underperformed and an outside consultant warned they would likely lapse, the bank trustee exchanged them for a guaranteed no-lapse John Hancock policy with a much smaller death benefit ($2.79M vs about $8M); the settlor died less than a year later. The court affirmed judgment for the trustee: choosing between two acceptable options on expert advice did not violate the Prudent Investor Act, hindsight is not the test, and lapses in annual reporting caused no proven damages (as of 2009-03-02)
- French v. Wachovia Bank, N.A., 7th Cir., July 17, 2013 (Sykes, J.): the ILIT trustee replaced two $5M whole life policies (Pacific Life, Prudential) with John Hancock no-lapse guaranteed policies, saving an estimated $620,000 in premiums, and its insurance affiliate earned a $512,000 commission. Affirmed summary judgment for Wachovia: the trust's express conflict-of-interest and investment-discretion language overrode the self-dealing bar and displaced the prudent-investor rule, the duty of good faith remained but no bad faith was shown, and fee-shifting against the beneficiaries was proper under Wisconsin law (as of 2013-07-17)
- Rafert v. Meyer, Neb. Sup. Ct., Feb. 27, 2015: attorney-trustee of an ILIT holding $8.5M of policies gave insurers a false address, policies lapsed for nonpayment, and nobody was told for two years. Despite trust terms saying the trustee had no duty to pay premiums or give notice, the court reversed dismissal: the trustee had a duty to inform beneficiaries once lapse notices issued, and exculpatory terms cannot shield bad faith or reckless indifference (Neb. Rev. Stat. 30-3897) (as of 2015-02-27)
- 26 U.S.C. §2042 (life insurance proceeds in the estate), Cornell LII
Hans Goldstein, CA Insurance License #4273294 · NPN 20602398 · Goldstein & Co. LLC dba Goldstein Insurance Services, CA License #6016830
Contact: hans@hansgoldstein.com · 213-414-2808
General education, not tax or legal advice. Tax treatment depends on your facts and on current law, which can change. Talk to your CPA or estate attorney. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Guarantees apply only to the contractual terms of the policy. Caps, participation rates, loan rates, charges and dividends are not guaranteed and can change. Hans is not an attorney. An ILIT is drafted by your estate attorney; coordinate premium gifts and Form 709 filings with your CPA. Hans is paid a commission by the insurer if you buy a policy through him. For life insurance, ask and he will tell you what he earns on your specific policy. Product and company names are trademarks of their owners. Goldstein Insurance Services is an independent agency, not affiliated with or endorsed by any insurer named here. Life insurance requires underwriting; not everyone qualifies. This page describes products in general terms; read the policy and the insurer's disclosures before you buy.