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Irrevocable Trusts Life Insurance (ILITS) are planning tools used to maintain the benefits of life insurance outside the estate liabilities.

For example, if a married couple has an estate of 6 million, they can pass 4 million to the new generation with no tax if the trust was established adequate to exploit the maximum lifetime unified credit. That leaves 2 million remain subject to tax under current law.

The logical thing is to buy a survival life insurance policy for the projected tax. However, a policy of buying in the most people are familiar with the problem is not resolved, but worse.

If the couple has "incidence of ownership" in politics, to be included in the estate. The purchase of a policy of one million mass dollars increased to 7 million. Four million passes tax-free, but now the passive mass is 3 million. This increases the tax by some $ 225,000.

Enter the Irrevocable Trust Life Insurance.

Attorneys draft Irrevocable Life Insurance Trusts. The trust will apply for its own identification number federal tax. The trust then applied to the politics of survival insurance. Will the applicant, owner and beneficiary of the policy. Typical wording is "The John and Mary Smith Irrevocable Life Insurance Trust dated 5 April 2007, JPMorgan Chase Bank, trustee. "

In this example, since neither John nor Mary has "incidence of ownership" in politics, will not be part of your taxable assets.

The owner and beneficiary

Unlike using a Ilit, I have worked with some cases where the only child or children are the owner and beneficiary. This might work. However, each year the parents gift the money to pay the premium, there is no guarantee that money will be used to pay the premium. Moreover, children, as owners, have access to cash values. A Ilit has a lot more security.

I saw the manager as a child, spouse, lawyer, accountant or a longtime friend of the family. All these works, but a United Nations bias third party, such as a bank, is much better. If an individual is the manager, the name of a bank as the successor trustee. Banks do not die.

The Crummey Letter

Usually, the life insurance premiums are paid by parents in the form annual donations to the irrevocable life insurance Trust. Currently (2007) a person can give $ 12,000 each year to as many people as they want without paying gift tax or the amount subtracted from their lifetime exclusion. However, these gifts must be "present interest" gifts, which means that the recipient must have immediate rights to the donation.

Gifts to Ilit, to pay premiums on a life insurance policy owned by the Ilit, are not "present interest" gifts. A "Crummey" letter qualifies the gift as a "present interest" gifts. The letter is not crummy or poorly written, the letter takes its name from a court case initiated in 1968 by Clifford Crummey, who was trying to do this very same thing: make annual gifts present interest gifts. Ultimately, the outcome of the case required the use of a letter, now known as the "Crummey letter.

A letter is sent each year to each of the beneficiaries of the Illit. Simply says that a gift has been made to the Ilit and can withdraw it if they want within a specified period, usually 30 days or 60. If you do not exercise this right, the gift becomes a gift of current interest.

Obviously, there is an "understanding" between parents and children to ignore these letters, since it is a part of succession plan in general. The annual gifts and the subsequent year Crummey letters do not have to go to children with legal capacity, as 18 years. I have seen letters written to 4-month-old infants. In this case, although the baby was not able to read the letter or not understand the logic of succession planning is therefore not exercised her right to the donation. Phew, another legal bullet dodged.

As you can see, it is very important to organize the annual drafting of these letters Crummey. Some departments of the banks confidence to the opening of this service if they were the trustee of the trust. This was just a courtesy they would never see or administer any of life insurance products.

The best bet is that his attorney not the letters. I have a client whose law firm (in a set of written instructions) is the announcement of premium life insurance company sent to your company, prepare and send the Crummey letters and then pay the premium. All the customer has to do is open a letter each year from the law firm indicating a premium and should send a check. Other than that, not have to lift a finger. Friendly service.

If you have a property that is subject to property taxes and his advisers suggest a life insurance policy to pay the tax at a discount, make sure that evaluate the use of an irrevocable life insurance Trust.

About the Author:

Robert D. Cavanaugh, CLU is a 36-year financial and estate planning veteran and author of the free newsletter, “The Estate Preservation Advisor”. For cutting-edge, easy-to-understand financial planning resources and techniques to increase your income, reduce taxes and preserve your estate, go to http://theestatepreservationadvisor.com/rd/subscribe.htm

Article Source: ArticlesBase.com – Ilit – the Irrevocable Life Insurance Trust

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