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Question: My client is going to set up an irrevocable life insurance trust (ILIT) to own insurance on his life. The beneficiaries of the trust and the trustee live in another state. Where should the trust be drafted?
Answer: Most people who intend to create ILITs will hire an attorney who is located in an area convenient to the insured/grantor. It makes sense to hire a local attorney, who is in the best position to meet with the client personally, assess the client’s objectives and help determine the proper jurisdiction to govern the trust.
A grantor drafting a trust in Tennessee, for example, may choose to have the trust governed by the rules of Nevada. Different states’ rules for trusts may allow a trust to last longer or be taxed in a more favorable way.
Each state has its own requirements for allowing a particular trust to be governed by that state’s rules. For example, the state may require that the trustee—or one of the co-trustees—be a resident of the state.
Choosing the proper governing jurisdiction for a trust can be a highly technical exercise. We always recommend that trusts be drafted by competent and experienced attorneys.
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