Posted: Thu Jun 26, 2008 10:21 am Post subject: Do you consider Life Insurance Trust important?
The life insurance trust is considered as a good option to avoid paying estate taxes on the proceedings of a life policy. However, this arrangement is pretty rigid. The policy holder, after shifting the rights to the trust, loses all control over the policy.
You can’t change the name of the beneficiary after you shift the rights to the trust.
You can’t take a loan out of the plan at the time of need.
If the policy holder dies within three years of setting up the trust, he will be considered as the owner of the plan. And hence, the life policy benefits will become taxable.
The life trust once set is irrevocable.
The money forwarded to the trust for making the premium payments for the policy may use up your estate tax exemption.
Still, how many of you feel that its important to set up the life insurance trust for future benefits?
Thanks in advance. _________________ Register Now to have your Insurance queries solved.
seekingfeedbacks an Irrevocable Life Insurance Trust (ILIT) is usually only set up when one has a Federal Estate Tax problem.
In 2008 the Federal Estate Tax exemption is $2 million per person and a married couple could exempt up to $4 million by using an A-B Trust.
With those facts in mind most of your bullets points are non-issues.
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You can’t change the name of the beneficiary after you shift the rights to the trust.
Because you don't own the policy...the trust does.
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You can’t take a loan out of the plan at the time of need.
Because you don't own the policy or the resulting cash value, the trust does.
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If the policy holder dies within three years of setting up the trust, he will be considered as the owner of the plan. And hence, the life policy benefits will become taxable.
True and FALSE.
This would only be true if you transfered ownership of a policy you owned personally to the trust.
That's NOT the way these are set up. The Trust is established FIRST, and is the Owner-Applicant of the life insurance. The Trust buys the policy on the insured, that way the Insured never has any incidents of ownership of the policy then three year rule doesn't apply.
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The life trust once set is irrevocable.
Well, yeah, of course, unless you want the life insurance to be INCLUDABLE in your Federal Estate Tax bill.
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The money forwarded to the trust for making the premium payments for the policy may use up your estate tax exemption.
Well sometimes one must choose between the lesser of two evils. Pay dollar for dollar out of your own pocket to pay the Federal Estate Tax or pay a life insurance premium to pay the tax with discounted dollars. _________________ Gary Spicuzza, *SAFE
Copyright 1956.
No rights reserved.
*Self Appointed Financial Expert
Gary is right on the money, which, it is inevitable, is what the trust is all about. The tax money, that is.
Think about this for 1 second, No life insurance trust, 10 Million policy-at death, included in your estate-heirs pay 5 Million or so in taxes. Life insurance trust established-not includable-no estate taxation.
Simple, no?
An ILIT is the way to go for those above the threshold.
Posted: Thu Jul 03, 2008 11:48 am Post subject: insurance
That's a bit confusing, GARY. How can the Trust own ITSELF? I thought the policy owner controls whatever is written on the policy. Can you explain alittle more...thanks.
A trust is its own separate legal entity just like a corporation is its own separate legal entity. They are not natural person legal entities. They are created out of paper, words on the paper, signatories to those words and to make it really official a notary public ink stamp and a couple of witnesses.
How does Microsoft Corporation own a building? Microsoft Corporation is nothing more than a notebook of paper sitting in Bill Gates office that contain the articles of incorporation.
So when the Grantor of the Trust signs the piece of paper known as the Irrevocable Life Insurance Trust he/she created a legal entity and granted authority to the Trustee of the trust to carry out the provisions of the Trust piece of paper with words on it for the beneficiaries of the trust.
The Trustee of the Trust is the applicant for life insurance on the life of Grantor who will be the insured and the trust will be the OWNER of the life insurance policy.
The TRUSTEE has legal title to all property owned by the trust. _________________ Gary Spicuzza, *SAFE
Copyright 1956.
No rights reserved.
*Self Appointed Financial Expert
An irrevocable life insurance trust (an "ILIT") is an irrevocable trust created for the principal purpose of owning a life insurance policy. As with any other trust, the insurance trust is a contract between a grantor and a trustee to administer certain property, in this case an insurance contract, for the benefit of named beneficiaries. The insurance trust, like other irrevocable trusts, cannot be rescinded, amended, or modified in any way after it is created. Once the grantor contributes property to the trust, he cannot later reclaim ownership of the property or change the terms of the trust.
One of the primary reasons for executing a life insurance trust is estate tax considerations. If an ILIT is properly structured, the death benefits paid to the trust will be free from inclusion in the gross estate of the insured. In addition, the ILIT can also be structured so that the trust will provide benefits to the insured's surviving spouse without inclusion in the surviving spouse's gross estate either.
Procedure to Establish Life Insurance Trust
The following are suggested procedures to establish an insurance trust for purchase and ownership of a life insurance policy:
1. The need for the irrevocable trust is established.
2. Terms of the trust are designed including the establishment of beneficiaries and the choosing of both initial and successor trustees.
3. Medical examination procedures should be commenced. There is no need to draft a trust if clients are not insurable. The insured should not sign anything at this point other than in his or her capacity as insured (i.e., not as the owner or applicant).
4. Attorney drafts insurance trust.
5. Client and trustee sign insurance trust. The trustee should apply for employer identification number.
6. Trustee applies for life insurance and signs application as insurance owner. If the insurance company requires a check with application, the application should not be commenced until the following three steps are completed: (i) the grantor makes initial gift to the insurance trust to cover initial premium; (ii) a checking account is opened in the name of the trust; and (iii) the trustee notifies beneficiaries that a gift is being made to the trust and that they have rights of withdrawal. The demand notice should be given and the period for withdrawals allowed to lapse prior to payment of any premiums to the insurance company.
7. The Trustee completes the application and pays initial premium.
_________________ Gary Spicuzza, *SAFE
Copyright 1956.
No rights reserved.
*Self Appointed Financial Expert
Posted: Sat Jul 12, 2008 11:11 am Post subject: insurance
Looking for GOOD Life Insurance can be difficult. I've looked at SOO many companies. Seems like I tell them what I want, but...they try to 'upgrade' me into something I don't want or can't afford right now. I'm not saying some Insurance Companies are NOT good ones. It can be upsetting when companies won't listen.
thanks for that information....
you really gave all the important news related to life insurance.....
can you give me a specific site where i can find some more information...
Posted: Wed Jul 16, 2008 10:46 am Post subject: insurance
ANY kind of insurance ( if you don't have a 'grasp' on it..) can be confusing. Just trying to find out which policy is best for me, at this 'time in my life'.
