"The most often ignored planning piece can provide the most significant value to the overall insurance plan."
This Blog is not intended as legal and/or taxation advice. I recommend that you discuss all pros and cons with a competent, board certified, estate planning attorney prior to deciding on the use of any legal document such as an irrevocable trust.
Instead this Blog is intended to make readers aware that using an irrevocable trust is an available option when implementing a premium financing strategy. Our firm works closely with your attorney(s) to ensure the legal team understands the plan structure and that the clients goals are fully understood.
ILIT's for Estate Planning
“The use of an ILIT will help you map out your family's future and leave a legacy with well-drawn wills, the right types of types of trusts, careful estate planning, and tax strategies.”
The two main advantages regarding ILIT use are Minimize Estate Taxes and Avoid Gift Taxes.
1. When life insurance is owned by an ILIT, the proceeds from the death benefit are not part of the insured's gross estate and thus not subject to state and federal estate taxation.
2. A properly drafted ILIT avoids gift tax consequences since contributions by the grantor are considered gifts to the beneficiaries. Premium financed insurance plans inherently reduce the amounts of the gifts by design. Each design contemplates annual gift exclusions and/or usage of unified credits.
ILIT's in Non-Qualified Supplemental Retirement Plans
Life insurance policies are often used to supplement retirement income and/or build a long-term accumulation account. The trustee of an ILIT can have discretionary powers to make distributions of policy income during the life of the insured and control when beneficiaries receive the proceeds of your policy. The insurance proceeds can be paid out immediately to one or all of your beneficiaries. Or you can specify how and when beneficiaries receive distributions. The trustee can also have the discretion to provide distributions when beneficiaries attain certain milestones, such as graduating from college, buying a first home or having a child. It’s really up to you. This can also be useful if the grantor of the trust has children who are minors or need financial protection.
ILIT's for Generational Planning
“If you have already paid for your children's private high school, university, and post secondary degree; what's left?”
A properly designed plan can provide your 20 to 40 year old child with a multitude of benefits and use of an ILIT can protect those benefits. Each state has different rules and limits regarding how much cash value or death benefit of a life insurance policy is protected from creditors for an individually owned policy. But any coverage above these limits, held in an ILIT, is generally protected from the creditors of the grantor and/or beneficiary. The creditors may, however, attach any distributions made from the ILIT which are generally discretionary.
No "Cookie-cutter"
Each financed plan, no matter the objective, is prepared and implemented based on the clients' specific current (and future) objectives.
Comments