Unfunded irrevocable life insurance trusts can be used to provide heirs and the surviving spouse with funds for estate costs and can provide estate tax savings if properly structured. A trust is the owner of the life insurance policy, and the grantor contributes to the trust to pay the premiums. The policy is therefore not part of the estate at death because incidents of ownership in the trust have not been retained by the grantor. Estate planners must consider what powers may be retained by the grantor and whether the contributions to the trust will trigger gift tax liability. Split-dollar policies may be used when a family business is involved.
When used correctly, irrevocable life insurance trusts (ILIT) are amazing tools that can remove life insurance proceeds from a client's estate, protect the proceeds from beneficiaries' creditors, and govern the administration and distribution of the proceeds for the beneficiaries' benefit. Unfortunately, in creating an ILIT, a number of errors may occur, and the ILIT may fail to function as the client or the client's advisors intended. Several strategies are available to eliminate mistakes in old ILITs and avoid mistakes in new ones, resulting in superior planning for the client and increasing appropriate life insurance sales to these vehicles. Finding and resolving potential issues before they create significant tax or legal issues for a client will result in better outcomes for the cl...
...Problem 1: Incidents of ownership retained by the grantor. Internal Rev...
Maximizing the tax and estate planning benefits of a life insurance trust requires careful planning to ensure that the trust is not included in the estate at death. The trust must be irrevocable and formed while the grantor is living to be excluded from the estate. The taxpayer may want to leave the trust unfunded and give the premium payments to the trust yearly to avoid gift tax liability. Since irrevocable trusts require the grantor to relinquish all incidents of ownership, choosing the right trustee to run the trust will be very important.
... (that is, the title or the substantial incidents of ownership in goods) to the buyer for a consider...
... if at his death he possessed any of the incidents of ownership. The Tax Court sustained the Commissi...
... been levied merely upon one of the "incidents of ownership" and hence to be excises: a tax which...
...For example, if the decedent possessed incidents of ownership in an insurance policy on his life bu...
... owners must enjoy the customary incidents of ownership, and share in the risks and profits c...
The National Insurance Act of 2007 (NIA) is the latest step toward the federal regulation of insurance. While this particular act, like those before it, will not likely become law this year, it demonstrates an accelerating movement. The bill itself is commanding in its length and specificity: a robust 330 pages, modeled off of a combination of federal banking and state insurance laws. It provides a first opportunity to understand how Congressional leaders view insurance regulation and what future federal regulation will look like. The particular area of concern for this article is Section 1243: the demutualization of mutual insurers. This article argues that the NIA would provide a unique opportunity to lessen the procedural and distributional burdens currently imposed by many states, t...
... in exchange for extinguishing their incidents of ownership. Third, the NIA neglects to include (...
... on account of decedent's retained incidents of ownership, that annuities were estate tax inclu...
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