6 ILITs

Question 1

If new policy purchased by ILIT, then face value…

Answer 1

… is removed from owner’s estate

Question 2

If an existing policy is transferred into ILIT, then…

Answer 2

…if the grantor survives 3 years, the death benefit is outside their estate

Transfer of insur. policy where decedent was the owner & insured is 1 of the 4 triggers for the 3-year rule

Question 3

Funded ILIT
- Funding?
- Who pays premiums?
- Crummey powers?
- Who pays income tax?

Answer 3

• Funding?: Transfer a life insur policy and income-producing property into the ILIT
• Trust income pays premiums
• No Crummey powers
• Taxed as grantor trust

Question 4

Unfunded ILIT
- Funding?
- Who pays premiums?
- Crummey powers?
- Who pays income tax?

Answer 4

• Funded with ONLY the life insurance policy
• Grantor makes contribs annually to pay premiums
• Benes have Crummey Powers, which turn contribs into present contributions, allowing for annual exclusion
• No income, so no taxes

The withdrawal amount is usually limited to the lesser of (a) the annual exclusion, (b) the annual contrib into the trust, or (c) the greater of $5K or 5% of the amt transferred into the trust aka 5x5 power

Question 5

Crummey Powers

Answer 5

Refer to a provision in a trust that allows beneficiaries to withdraw contributions made to the trust for a limited period, typically 30 to 60 days.

These powers are primarily used in Irrevocable Life Insurance Trusts (ILITs) and other gifting strategies to qualify contributions for the annual gift tax exclusion under IRC §2503(b).