Any contributions to the trust, whether cash or property, including the life insurance policy, are considered gifts to the beneficiaries of the trust. Generally when gifts are made to the trust, the objective is to have them qualify as present interest gifts under the $13,000 per donee annual exclusion, and thus avoid the filing of a gift tax return and the reduction of the unified credit.

To qualify as a present interest gift, the ILIT trust document should include a Crummey provision that allows the beneficiaries a limited period of time (usually 30 days) to withdraw any gifts made to the trust. The intent, of course, is that no withdrawals will be made and the money will be available for the trustee to use for premium payments.

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