For the first time, two very recent Tax Court opinions (Est. of Cahill v. Commissioner and Est. of Morrissette v. Commissioner) have discussed the court’s view of the estate taxation of economic benefit GSDs. These arrangements generally involve a parent who enters into a private split-dollar agreement with a life insurance trust agreeing to pay…
The GST tax generally applies to transfers to irrevocable life insurance trusts (“ILITs”) that benefit both “skip persons” (e.g., grandchildren and more remote descendants) and non-skip persons (e.g., children). The annual GST tax exclusion and GST tax exemption are available to apply to ILITs, but the rules regarding their application are complex.
Private split-dollar arrangements (“SDAs”) typically involve a trust creator (“grantor”) that advances life insurance premiums on behalf of his or her irrevocable life insurance trust (“ILIT”), subject to a repayment right for such advances (the “SDA receivable”).
Long-term irrevocable (dynasty) trusts can become inefficient over time. Moving the trust to a new jurisdiction may provide opportunities to refresh the administration of the trust, address state income tax issues, strengthen creditor protection, and decant trust assets to a new trust. The authority to move a trust’s situs may be found in the trust…
In PLRs 201723002 and 201723003, the IRS ruled on the tax consequences of a judicial reformation of an irrevocable life insurance trust (ILIT) to correct a scrivener’s error that otherwise would have resulted in inclusion of the ILIT assets in the grantor’s estate, against her stated intentions in creating the trust.
According to experts, some of the most common mistakes in life insurance planning include: (1) failure to qualify gifts to irrevocable life insurance trust (“ILITs”) for the annual gift tax exclusion; (2) improper allocation of GST tax exemption to ILIT gifts; (3) retention of incidents of ownership in an ILIT-owned policy; (4) failure to understand…
Under IRC § 1361(c)(2), a trust treated as a wholly-owned grantor trust for federal income tax purposes with regard to an individual may hold S corporation stock as an eligible S corporation shareholder, so long as the grantor is a U.S. citizen or resident.
While President Trump and the Republican-controlled Congress have promised major tax reform, uncertainty remains as to the final outcome. Despite this, the advisors surveyed indicate that many clients are still moving forward if the planning approaches satisfy their practical needs and provide flexibility.
ILITs, when tailored to the needs of the ILIT creator (“grantor”), can offer many benefits, including blended family planning, family financial security, estate liquidity, creditor protection, and centralized wealth management for ILIT beneficiaries. With proper implementation and administration, the ILIT’s assets also should not be included in the grantor’s taxable estate.
ILITs present unique fiduciary challenges in terms of administration and asset management. The growing complexity of life insurance products, along with the administrative requirements to preserve an ILIT’s intended tax treatment, can make ILIT trust administration far more complicated than anticipated, particularly for non- professional trustees.