If you have assets and have an estate plan, you likely identified if you also have an estate tax issue and what it will cost your heirs to settle with Uncle Sam when your gone. Perhaps your planner suggested to reposition assets, make annual gifts and consider an irrevocable life insurance trust (ILIT) to provide instant liquidity to pay the tax at the same time its due.
Millions of affluent families have set up an ILIT and in doing so found that an insurance trust can solve all kinds of familial issues beyond funding estate taxes. The consensus among planners is that your better off with an ILIT than without one. After all, the ILIT will keep your life insurance proceeds out of your estate if administered properly. When you decide to set up a trust you carefully select a trustee, often it’s someone with whom you have a close relationship or a trusted financial advisor. What is not always considered is who is the best equipped to manage the administration and fiduciary responsibility associated with the ILIT. Most trustees selected are not professional trustees and don’t have a full appreciation for their roll while the grantor is alive and therefore don’t consider the time sensitive notifications trust beneficiaries must receive each time the grantor makes a gift to the ILIT. The trustee will follow instructions set forth by the grantor upon their death but until that time the trust needs to be monitored, policies maintained and premiums paid when due. While it sounds pretty simple, the process often breaks down just prior to the insurance premium due date. The trust will often need to be funded from gifts from the grantor. Notices about the funding must be sent to the beneficiaries detailing their withdrawal rights so it can be recorded as a present interest gift as proof to IRS should it be requested. This notification process is often called a Crummey Notice, named for Clifford Crummey who successfully challenged the IRS and led to legitimizing the process of making a present interest gift to fund an ILIT.
For additional information about CrummeyService.com, please contact Randall Peck at 888-648-ILIT (4548) or info@crummeyservice.com
Randall W. Peck is the founder of CrummeyService.com, LLC
