What are an ILIT’s components?

Irrevocable life insurance trusts (ILIT’s) are used to:

• create an estate for heirs using life insurance
• shield life insurance payouts from estate tax
• replace assets given to charities or placed in IIOT’s (Irrevocable Income Only Trusts)

People often make the mistake of naming their estate as the beneficiary of their life insurance policy. This makes the proceeds of the policy, known as the death benefit, part of the taxable estate. A simple way to avoid estate tax issues is to transfer life insurance policies into an irrevocable life insurance trust. The value of the insurance remains outside your taxable estate, but you can still name beneficiaries for the trust. ILIT’s can help replace assets donated to charities or place in IIOT’s by providing a lump sum payment to the trust when you pass on.

There are three components in an irrevocable life insurance trust, similar to those found in a living trust:

1. Trust makers, who control their ILIT’s through their instructions
2. Trustees and their successor trustees, named by the trust makers
3. Beneficiaries and contingent beneficiaries, named by the trust makers

Who buys the life insurance on my life or my partner/spouse’s and my lives?

The life insurance is purchased by the ILIT’s trustees.

Can I or my partner/spouse be a trustee?

A third-party, independent trustee should be named in order to keep proceeds out of your taxable estate.

Why would I want my irrevocable trust to own my life insurance?

If you own life insurance, it is included in your taxable estate and the proceeds will be taxable for federal estate tax purposes. So, in 2009, an individual is allowed a federal estate tax exemption on their first $3.5 million of assets, including all life insurance policies in their name. (This fact comes as a surprise to many people but this treatment of insurance proceeds dates back almost to the inception of the federal estate tax.) If life insurance policies are owned by a properly structured ILIT, the proceeds will be free of the estate tax.

What if I don’t own my insurance but control it through some one else?

Even if you do not own your life insurance in your name, the IRS may determine you to be the owner and therefore liable for federal estate taxes on the policy proceeds. Your life insurance will be included in your taxable estate as long as you possess any incidents of ownership for federal estate tax purposes. Incidents of ownership include your rights to borrow on a policy or pledge as collateral, name or change the beneficiary, and assign the policy to someone else.

If you maintain any right to a life insurance policy, the IRS will take the position that you retained incidents of ownership and will include the proceeds in your taxable estate. With a properly structured ILIT, you no longer retain any incidents of ownership under the IRS definitions and will not be liable for federal estate taxes.

What is the theory behind an ILIT?

Because the trust is irrevocable, you do not have incidents of ownership in it or in the life insurance policies owned by it. An irrovocable trust is a trust that can’t be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets into the trust, effectively removes all of his or her rights of ownership to the assets and the trust.

This is the opposite of a “revocable trust”, which allows the grantor to modify the trust. While the tax rules will vary between jurisdictions, in most cases, the grantor can’t receive these benefits if he or she is the trustee of the trust. This fact often leads to the consideration of employing a corporate trustee to serve as the fiduciary administrator over the trust assets.

Thus the proceeds of those policies will not be taxed upon your death nor will they be taxed upon the death of your spouse if he or she survives you. They completely avoid the federal estate tax.

You are able to control the disposition of the policy proceeds through your trust instructions as to:

1. Who the trustees will be while you are alive, upon your disability, and upon your death.
2. How the proceeds will be distributed to your beneficiaries or left in trust

What is an irrevocable life insurance trust?

An irrevocable life insurance trust (ILIT) is an irrevocable trust that is created to own and be the beneficiary of life insurance policies on the trust maker’s life. A reason to use this type of trust is to remove the insurance proceeds from a person’s taxable estate. Remember, that normally when you own a life insurance policy, the proceeds from that policy are included when calculating your taxable estate for tax purposes.

Understanding Generativity – Legacy & Estate Planning

Introducing the Concept of Generativity

Erik Erikson, the noted psychotherapist most famous for coining the phrase “Identity Crisis” also gave us the term “Generativity” as part of his 8-Stages of Human Development.

Generativity is the ability to generate anything tangible that will exist beyond one’s earthly life; particularly when exhibiting a need to nurture and guide younger people and contribute to the next generation.

There are four primary categories of Generativity, they are:

1) Biological – the act of making a child;

2) Parental – the act of raising a child;

3) Technical – the creation of tangible works that will maintain an existence beyond your life, (i.e., paintings, writings, or a business organization); and,

4) Societal – the ability to create societal change and/or reform, (i.e., Ghandi, Martin Luther King, Jr., et. al.).

With this brief introduction to the concept of Generativity, how does your current set of plans (Legacy or Estate) measure up on the generative scale?

A Courtesy Sneak Peak at Our New Book

Decades from now, when your grandchildren speak to their grandchildren about you, what would you like them to share? Are there family traditions that you hold dear and hope that they continue for generations to come? How will future generations learn the origins and importance of those traditions? A Guide to Crafting Personal Legacy Statements: an Ancient Legacy Tool of the Wealthy and Wise helps you identify and generate responses to these questions and more. This is not a “how-to” book for writing a life story or family history, but a dynamic tool for sharing a legacy, your’s or your family’s legacy. Who and what have shaped your life? What do you value most? What do you want future generations to remember about you? A Guide to Crafting Personal Legacy Statements empowers you to create a powerful legacy statement to be shared at the time of your choosing during your life or after your time has passed.

View this document on Scribd

To get your copy today visit www.Axis-Publishing.com

Other Resources: For great tips and to associate with others interested in Personal Legacy Statements join DonWestJr-theCommunity a free online tool Empowering Legacy Development & Strategic Action-Based Life Planning.

A conversation about “A Guide to Crafting Personal Legacy Statements” with Don West, Jr. and Tim Morrison (Pt. 1 of 6)

A Presentation by Don West, Jr. and Tim Morrison at the University of Miami on Nov. 20, 2008

more about "Legacy Statements Pt. 1 of 6 – DonWes…", posted with vodpod

Released in November of 2008, A Guide to Crafting Personal Legacy Statements – An Ancient Tool of the Thoughtful, Wealthy & Wise promises to become a valued treasure to both you and many generations to come.

See the complete interview at www.DonWestJr.net – An online community dedicated to Empowering Legacy Development and Strategic Action-Based Life Planning

Introducing the Four Building Blocks of a Legacy Plan

What is Legacy Planning?

Legacy Planning is a compliment to the estate planning process and focuses on the intangible assets a person or family posses. A critical element in the generation of a legacy is the ability to maintain a tangible presence beyond the actual span of one’s lifetime. While physical assets may be deemed a component of a person’s ultimate legacy, the focus on family or institutional history, values and the stories that define us dictates that every individual, family and entity can be enriched through implementing a strategic legacy plan.

Let’s begin with a quick introduction to the Four Building Blocks of a Basic Strategic Legacy Plan.  They are:

#1 – Personal Mission Statement;
#2 – Strategic Life Plan;
#3 – Personal Legacy Statement; and,
#4 – Family Mission Statement

Personal Mission Statement

A Personal Mission Statement is a series of guiding principles strategically developed to guide both your daily and major life decisions.

Strategic Life Plan

A Strategic Life Plan puts purpose and direction with quantifiable goals and objectives tied to your personal mission statement. This plan allows you to dream your perfect future and then develop the steps to actually achieve your desires.

Personal Legacy Statement

A Personal Legacy Statement allows you to articulate what is closest to your heart. It creates a record of the messages and information too valuable to be lost and captures your reflections for the benefit of others as a timeless gift to future generations.

Family Mission Statement

When we consider the term mission statement, most of us think of the statements created for business enterprises. For a small company, this mission statement is a written explanation of the values and beliefs that have led the business to its current success; it’s a plan for organizing the financial and human assets of the business to ensure its future success. The family mission statement works in much the same way. It is a statement of family identity: who you are, what you believe in and what you will do in the future. The Family Mission Statement allows the family to organize and focus the human resources of the family for the greater good of the community and society at large.

Additional Resources

Get more information and great tips at www.DonWestJr.net – An online community Empowering Legacy Development and Strategic Action-Based Life Planning.

Learn more about Personal Legacy Statements at www.Legacy-Statement.com

Who Needs Legacy & Estate Planning?

What is Your Legacy?

Contrary to popular belief, Legacy & Estate Planning isn’t just for millionaires – it’s for anyone who cares about what happens to their assets after they pass or who desires to leave a record for future generations to be able to access.

That said, Legacy & Estate Planning is particularly important for people in a number of basic life situations:

Married Couples: Each spouse must have a separate will. Joint wills can create legal issues if you both pass within a few weeks or months of each other.

Divorced Couples: Make sure your assets go to the “right” people, especially if you’d prefer that they not go to your former spouse’s new partner and his or her children. To protect your own children, you may need to establish a trust.

Business Owners: Create a succession plan that specifies what should happen to your business, or your equity in the business, if you become incapacitated or pass away. Be sure that the business has enough cash on hand to survive the transition to new ownership.

Future Millionaires: Currently, the estate tax provides an exemption for estates valued at $2 million or less (it will rise to $3.5 million in 2009). This exemption has historically been $1 million and will most likely revert to that level in the year 2011. As a general guideline, if your estate currently totals $1 million or more – or has a strong prospect of exceeding $1 million in value during your lifetime – you should establish trusts to protect assets you may have beyond the $1 million benchmark.

(Special note: Many people are not aware that life insurance proceeds are included in your taxable gross estate and should be included when calculating potential estate tax liabilities.)

Professional Athletes: The unique demands and rewards of excelling as a professional athlete create unique needs and opportunities for both estate and legacy planning. Most sports stars understand the necessity to protect their hard earned dollars, but often fail to receive proper advice and counsel from those charged with directing their affairs. From issues of caring for your family and loved ones to handling the affairs of off-the-field ventures and charitable foundations require the consultation of expert counsel.

Entertainers & Artists: Those who hold valuable intellectual property rights, (copyrights, trademarks, etc.), or derive income from royalty payments need to consider special plans to deal with these unique issues.

GRAPHIC SOURCE:
We offer many thanks to the talented hand of Robert Weber whose work was originally published in The New Yorker August 16, 1999.