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    Trust Architecture Center

    Side-by-Side Trust Comparison

    Select any two trust structures to compare provisions, tax treatment, and succession mechanics at a glance.

    Structure A

    Structure B

    Attribute
    Revocable Trust
    ILIT (Irrevocable Life Insurance Trust)
    Overview
    A living trust that can be altered or canceled by the grantor during their lifetime. It avoids probate but does not remove assets from the taxable estate.
    A trust designed specifically to own life insurance policies, removing the death benefit from the insured's taxable estate.
    Overview
    Grantor: The individual or couple establishing the trust.
    Grantor: The insured individual who establishes the trust.
    Funding
    Transfers Assets: Funded with real estate, brokerage accounts, bank accounts, and personal property during the grantor's lifetime.
    Gifts Cash (Crummey): Funded via cash gifts from the grantor, often utilizing the annual gift tax exclusion with Crummey withdrawal letters.
    Ownership
    Retains Control: The grantor retains full control and ownership of the assets during their lifetime. The trust is a pass-through entity.
    Trust Owns Policy: The trust owns the policy. The grantor must give up 'incidents of ownership' to keep proceeds out of their estate.
    Distribution
    Passes to Beneficiaries: Assets are distributed according to the trust document upon the grantor's death, bypassing public probate.
    Pays Death Benefit: Death benefit is paid to the trust and distributed to beneficiaries free of estate and income taxes.
    Tax Treatment
    Pass-Through: No estate tax shielding. Assets remain in the taxable estate and income is reported personally.
    Tax Shielding: Death benefit is shielded from estate taxes, providing tax-free liquidity to the estate or heirs.
    Succession Mechanics
    Upon death or incapacity, a successor trustee takes over management without court intervention.
    Provides immediate tax-free liquidity to heirs or the estate to fund business buyouts or pay estate taxes without liquidating the company.
    Tax Considerations
    No immediate tax benefits. Income is reported on the grantor's personal tax return. Assets remain in the taxable estate.
    Removes life insurance proceeds from the gross estate. Gifts to fund premiums must follow Crummey withdrawal rules.
    Business Scenario
    A business owner places their LLC membership shares into a revocable trust to ensure their spouse or children seamlessly inherit the business without probate delays, but it offers no creditor protection.
    A business owner with a $30M estate needs liquidity for estate taxes. They establish an ILIT to purchase a $10M policy, ensuring their heirs have tax-free cash to pay the IRS without selling the business.
    Best Suited For
    Owners who want probate avoidance and seamless succession while retaining full control of assets during life.
    Owners who need tax-free liquidity for estate taxes or buy-sell funding without liquidating business assets.
    Common Provisions
    No-Contest Provision (In Terrorem)
    Trustee Removal & Replacement
    Spendthrift Provision
    Discretionary Distribution Clause
    No-Contest Provision (In Terrorem)
    Trustee Removal & Replacement
    Spendthrift Provision
    Discretionary Distribution Clause

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