At the death of the grantor, the trustee can distribute the proceeds of the policy, as per the provisions of the trust, immediately after receiving the payout of the policy.

The trustee can hold the proceeds in-trust for a period of time, if so stipulated in the trust draft, much like the distribution options of a RLT.

If this particular ILIT format is to be established by a married person, then it is imperative that no benefits of the principal of this trust be available to the grantor’s spouse – otherwise the insurance proceeds will be in the spouse’s estate for transfer tax purposes.