ILITs: Flexibility is the Answer
Posted on Tue, Mar 08, 2011 @ 01:59 PM
By: Laura Pyne, C.P.A., J.D., LL.M.
www.pynelawgroup.com
Member of WealthCounsel
Irrevocable life insurance trusts (ILITs) are an effective and popular estate planning tool. Given the irrevocable nature of these trusts, however, some clients worry about the issue of flexibility when deciding whether or not to create an ILIT. Veteran estate planners Bill Conway and Merrell Bailey remind us that estate planning with an ILIT need not be inflexible. In a recently hosted national webinar titled "To ILIT or Not to ILIT. That is the Question," reaching an audience of over 1,300 attendees, they discuss techniques to draft flexibility into an ILIT, as well as practical issues that can arise by their use.
Trust Authority Positions. Planners increasingly counsel clients to include various authority positions in their irrevocable trusts as a means to create flexibility in trust design. However, explaining these different roles to our clients and counseling them to choose wisely isn’t always easy. Merrell explains how she describes these roles to her clients and offers a concise color-coded matrix she developed to counsel clients. She discusses issues that arise when a client desires to name the same person to multiple authority positions within a trust, including difficulties that may exist when the same person is asked to fulfill both fiduciary and non-fiduciary roles. The webinar slides and handout materials also include sample trust language and references to published articles for each authority position.
Grantor Trust Rules. ILITs taxable as grantor trusts can allow the grantor to be taxed on trust income while still removing ILIT assets from the grantor’s estate. ILITs taxable to the grantor can offer flexibility and open a host of other planning opportunities not otherwise possible with an ILIT not taxed as a grantor trust. Bill explains how selling a life insurance policy to a grantor trust can facilitate the transfer of a policy out a grantor’s estate, or be used as a means to amend an existing (or unwind a bad) ILIT. He also discusses how ILITs taxable to the grantor can be drafted to allow the grantor or grantor’s spouse indirect access to the policy’s cash value, and also coordinated with dynastic trust planning to create a “family bank,” which may benefit the grantor’s descendents with perpetuity.
The webinar is a unique contribution to ILIT education, coupling didactic material with a wealth of practical resources that can be immediately incorporated into your practice. Access to the webinar and handouts can be found in WealthCounsel's Library of Free Resources in case you missed this informative session.
Laura Pyne is the founder and President of Pyne Law Group, a local law firm specializing in income tax, retirement, and estate planning for closely held business owners and professionals.
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