Contribution Notice – Who Signs for a Minor?

Irrevocable Life Insurance Trusts

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Irrevocable Life Insurance Trusts (ILIT) 

Many people create irrevocable life insurance trusts (ILIT) for the benefit of minor children. The common scenario is that the grantor will create an ILIT and his or her spouse will act as trustee of such trust.

Because ILITs are established as Crummey trusts, a contribution notice should be sent out to the beneficiaries whenever a contribution is made to the trust.

When the children are minors – who signs off on the notice, the Grantor or the Trustee?

General consensus amongst practitioners is that the Trustee parent should sign the notice under the theory that if the Grantor parent acts as if he or she has a withdrawal power, then he or she is maintaining an impermissible incident of ownership in the trust. Such retention of power might cause the trust to be includible in the Grantor’s estate for estate tax purpose, thereby nullifying the reason the trust was probably created in the first place.

For second to die life insurance trusts, neither parent should act as signer for a minor child. Accordingly, to be very safe, a guardian ad litem should be appointed, in a limited capacity, to sign the contribution notices. Practitioners should try to avoid creating second to die life insurance trusts until the designated beneficiaries of the trust have reached the age of majority.

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