The policy needs to be transferred out of Bob and Joan's estate to a newly created irrevocable life insurance trust
for the benefit of their sons.
Even an Irrevocable Life Insurance Trust
can be dissolved via a Family Settlement Agreement with signatures from all parties.
Where the life insurance continues to require payment of premiums after the gift, a typical irrevocable life insurance trust
plan will call for the insured to make annual gifts to the trust to cover the premium payments.
* Irrevocable life insurance trust
. Life insurance not only provides financial security to surviving family members, but it can also create liquidity to pay for estate taxes.
As with any estate-planning decision, you shouldn't postpone creating an irrevocable life insurance trust
once you determine that you need it.
Included is a sample irrevocable insurance trust, drafting suggestions for using irrevocable life insurance trust
, and client letters.
Also new, Figure 15-1 does a particularly good job of depicting the evolution of beneficiaries and taxation of the irrevocable life insurance trust
. Later, in chapter 17, Miscellaneous Lifetime Planning, Figure 17-1 concisely summarizes the taxation of the major trusts used in estate planning.
You may wish to consider, for example, the creation of a revocable living trust or an irrevocable life insurance trust
. Another consideration would be to find the most effective way to minimize the excise tax on "excess" retirement benefits or the generation-skipping transfer tax.
A more complex strategy may involve the use of a charitable remainder trust (CRT) combined with an irrevocable life insurance trust
(ILIT) to replace the wealth given away.
In a Graegin loan transaction, a family entity or trust (e.g., an irrevocable life insurance trust
owning the life insurance) can loan cash to a cash-strapped estate to pay taxes.
And if establishing a legacy for heirs is desired, the donor can also set up an irrevocable life insurance trust
, the policy proceeds replacing at the donor's death the assets given to charity.
* Create a grantor irrevocable life insurance trust
(ILIT) funded with annual exclusion or lifetime exemption gifts.