I have previously written about the $15,000 annual exclusion, and Irrevocable Life Insurance Trusts (“ILIT’S”). ILIT’S are created primarily to own life insurance and remove the death benefit from the insured’s taxable estate. To achieve the desired estate tax benefit, premiums must be paid by the Trustee on behalf of the ILIT as the policy owner. For example, assuming Dad is the owner, when Dad writes a check for the premium, the check is written to the Trustee, not directly to the insurance carrier. When Dad pays the premium to the Trustee, this premium payment constitutes a gift to the ILIT beneficiaries, typically the surviving spouse and children. Now it gets complicated: In order to use Dad’s annual exclusion ($15,000 each per Trust beneficiary), the gift must be a “present interest.” If the payments are made to the ILIT, however, in which the beneficiaries do not receive benefits until Dad dies, the transfer is not a present interest. Thanks to Mr. Crummey (yes, that is his name), the taxpayer who came up with this plan, Dad can send out a “Crummey” letter converting the premium payment into a present interest by giving the beneficiaries (or guardians if minor children) the right to withdraw the premium payments. Consider this example: Dad’s premium is $30,000. He sends a check to his brother Bill, who serves as the Trustee. Bill deposits the $30,000 in Dad’s Irrevocable Life Insurance Trust Account. Upon receipt of the funds, Bill sends a letter to Dad’s two adult children, telling them “as beneficiaries you have 30 days to withdraw your share of the funds deposited in Trust, which equals $15,000.” After 30 days passes and the children have not withdrawn the premium payment, Bill sends an ILIT check for the premium payment to Large Insurance Company. The end result is Dad uses his $15,000 annual exclusion for the premium payment, without any gift tax consequence, and the ILIT protects the death benefit for Mom if she survives Dad, and ultimately the children estate and gift tax free.
Irrevocable Trusts, “ILIT” – short for Irrevocable Life Insurance Trust – are created to own life insurance policies. The significant advantage of having insurance policies owned inside an ILIT is that the death proceeds are not included in the insured’s taxable estate upon his death. Further, the death proceeds are not taxable in the surviving… Read »
When individuals consider how assets pass upon death, they immediately think of Wills (and perhaps Revocable Trusts for probate avoidance). What often is not considered, and even misunderstood, is that even if individuals have executed valid Wills, their wishes may not be respected. Why – because those estate documents will not generally supersede asset titling… Read »
The annual exclusion gift amount remains at $15,000 for 2019. The annual exclusion gift is the amount that you can give to any recipient during the calendar year without gift tax consequence. For example, in 2019, if husband and wife have two children, they each can give $15,000 to each child, total of $60,000. Upon… Read »
Estate planning involves more than avoiding probate and estate taxes. Probate can be avoided by using Revocable Living Trusts. Estate taxes are not a concern for most U.S. taxpayers with the gift and estate tax exemption now at $11.4 million per person. Because of “portability,” a husband and wife can either gift or pass upon… Read »
The 2019 inflation adjusted amount for the federal gift and estate tax exemption is now $11.4 million per person. Because of “portability,” a husband and wife can either gift or pass upon death $22.8 without paying any gift or estate tax, regardless of how assets are titled among spouses. The $11.4 amount increased from the… Read »
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About Revocable Trusts
John P. Dedon
John P. Dedon is a tax lawyer with a talent for explaining the complexities of tax law in lay terms. Working in the estate planning, asset protection and business areas for more than 35 years, John helps clients preserve assets and plan for the future with traditional planning tools, including Trusts (dynasty trusts, intentionally defective trusts, grantor retained annuity trusts), LLC and partnership entities, and cutting-edge concepts such as cryonic preservation trusts.
Fellow of the American College of Trust and Estate Counsel (ACTEC)
Martindale-Hubbell AV Rating/Top Rated Estate and Taxation Lawyer
Consecutive years named Washingtonian Best Lawyers; Best Lawyers in America® for Trusts and Estates; Washingtonian Magazine’s Top Wealth/Financial Advisor; Top Lawyer and Top Financial Professional by Northern Virginia Magazine.