Some Basics of Estate Planning

Steve Savant is a national insurance columnist, financial color commentator and host of the daily Internet talk show, The Business Insurance Zone. Steve's special guest, Louis Shuntich, JD Senior Vice President Advanced Planning, Advanced Marketing with Lincoln Benefit Life. On Tuesday's Show, Steve and Lou address some of the basics and preplanning to estate planning that are universal to many potential clients, which in turn can help an advisor build out their business and position their practice as a provider of product and resources in their community. They explore the basic understanding of policy ownership, the insured and the beneficiaries. There are several giveaways on the show throughout the series. You can order any of those at thebiz@brokersalliance.com or 1 800 290 7226 extension 147. Irrevocable Life Insurance Trust (ILIT) The basics: The trust must be in existence before the coverage is purchased. The trustee must be the applicant, owner and beneficiary of the policy. The trustee must be seen as independent and separate of the prospective insured. The trustee is authorized to purchase life insurance on the grantor and is not required to buy it. Second-to-die policies are used with ILITs because the timing of the death benefit coincides with the occurrence of the couple's estate tax liability that is delayed until the second death through application of the marital deduction. Of course one insured scenarios exist and ILITS may still be applicable. Premiums are more affordable because the death benefit is not paid until the second death. The two insureds should not have any interest in the policy or the trust i.e., not be a trustee or beneficiary or have a Crummey withdrawal right. For gifts to the trust to qualify for the annual gift tax exclusion, each trust beneficiary must have the right to withdraw their share of the gift before it can be used to pay premiums Insured makes gift of premium to the trust. Trustee notifies the beneficiaries that they may withdraw their share of the gift Beneficiaries do not withdraw and the premium is thereafter paid to the insurance company. What will happen to the value and salability of Bill's business if a key person dies Key Person: Internal Revenue Code Section 101(j) limits the death proceeds an employer can exclude from income when the insured is not a director, a highly-compensated employee or a highly-compensated individual at the time of policy issue, or when the death benefit is not used to purchase the insured's ownership interest in the business. The Code also imposes specific requirements that the employer provide advance written notice to the individual about the insurance, secure his written consent and submit annual reports to the IRS.