What an ILIT Costs to Create and Run

Why there’s no honest “average”

You will find plenty of pages quoting a precise average cost to set up an ILIT, or a typical annual trustee fee to the dollar. Treat them with caution. There is no government or authoritative statistical source — no IRS, Census, or Bureau of Labor Statistics figure — for the cost of drafting or administering an ILIT. Every number in circulation is a practitioner estimate or a marketing figure, and the real cost depends on facts specific to you: your attorney’s market, the trust’s complexity, your choice of trustee, and how many beneficiaries hold withdrawal rights.

Drafting the trust

The first cost is a one-time legal fee to draft the trust document and coordinate the insurance application so the trust — not you — owns the policy from the start. A simple, standalone ILIT is a relatively contained document. One woven into a larger estate plan, with multiple beneficiaries, hanging powers to manage the 5-and-5 lapse limit, or split-dollar provisions, costs more because there is more to draft and coordinate. This is not a place to bargain-hunt: a poorly drafted ILIT can fail at exactly the moment it matters.

Trustee fees

The trustee cannot be you, so someone has to serve — and how they are paid varies enormously:

• An individual trustee — a family member or trusted friend — often serves without a fee, though they are entitled to reasonable compensation if the trust allows it.
• A professional or corporate trustee charges for the service, typically as a percentage of the assets under administration or a flat annual fee, frequently with a stated minimum. These schedules are set by each institution and differ widely; there is no single market rate. The upside is competence and continuity — a corporate trustee will actually send the Crummey notices every year, which is precisely where amateur administration breaks down.

When you weigh an individual against a corporate trustee, you are trading cost against reliability. The cheapest trustee who forgets the annual notices can be the most expensive mistake in the plan.

The annual administration burden

The cost people most often underestimate is not a dollar figure at all — it is the recurring diligence of running the trust:

The recurring tasks are concrete: a Crummey notice to every beneficiary each time you make a contribution, a trust bank account kept separate from your own money, records retained to prove the present-interest treatment, and a tax return when one is triggered — a gift-tax return (Form 709) when gifts exceed the exclusion or to elect gift-splitting, and a trust income-tax return if the trust has gross income of $600 or more in a year (Instructions for Form 1041). A trust holding only a policy with no cash value usually has little or no income, but a trust holding a reserve or a cash-value policy may.

How to get a real number

Instead of trusting an internet average, price your own ILIT directly. Ask three questions and you will have a figure grounded in your facts:

1. To the drafting attorney: a written, all-in quote to draft the ILIT and coordinate the policy — flat fee or hourly, and what’s included.
2. To any professional trustee you’re considering: their published fee schedule, including the annual minimum and how the fee is calculated.
3. To whoever will administer it: who sends the Crummey notices, who keeps the records, and who prepares any required returns — and what that costs if it’s not you.

Weigh those real numbers against the tax the ILIT is actually saving you. If your estate is under the $15 million exclusion, the tax saved may be zero — in which case the honest answer, covered on the alternatives page, is that the cheapest structure is no ILIT at all.

Sources & methodology