Ownership of kids' policy question...Am I crazy/stupid?

[Tahoe Ray]

Yes - $26,000 which represents the annual exclusion from quite a few years back for he and his wife

I'm not an attorney, but having the spouse as trustee while he's still alive and using joint assets to pay for his policy sounds like a mess waiting to happen.

 

[scagnt83]

I'm not an attorney, but having the spouse as trustee while he's still alive and using joint assets to pay for his policy sounds like a mess waiting to happen.

We are assuming the client used the correct terminology.

Most do not.

I've heard many clients call the Bene the Trustee.

Hell, I've heard many agents/advisors confuse the terms before.

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If the father is the Owner. Those policies are included in the Estate and would be subject to Estate taxes if not in the trust.

I bet $100 the wife is bene, not trustee.

 

[Allen Trent]

We are assuming the client used the correct terminology.

Most do not.

I've heard many clients call the Bene the Trustee.

Hell, I've heard many agents/advisors confuse the terms before.

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If the father is the Owner. Those policies are included in the Estate and would be subject to Estate taxes if not in the trust.

I bet $100 the wife is bene, not trustee.

I honestly dont think it would be uncommon for a mother to be the trustee of an ILIT that hold life insurance on the kids, the question would be who are the beneficiaries of the ILIT as the grantor or the grantors estate cant be beneficiary. If wife/mom is not a beneficiary of the ILIT, likely not an issue for her to be the trustee.

That would likely eliminate mom & dad as beneficiaries & with the children not having their own children, I can only assume the ILIT names the other siblings or the future estate of the children.

 

[T in CA]

Does seem odd to have what appears to be a more cash accumulation focus of overfunding PUAR inside an ILIT because of the restrictive access to ILIT in future

Actually, changing ownership to the kids after they had built up cash values likely would have caused the couple to owe gift taxes on the ownership change. Married couple can only give 36k per year to someone & this couple is likely already using that annual gift exclusion to fund the ILIT on the parents. So, your suggestion to change later could have triggered sizeable gift tax bills.

True point. However, he has over $30 Million of life insurance on his life in the ILIT...so using some of the lifetime gift exemption is not the end of the world...LOL!

 

[T in CA]

If they are using gift tax exclusion to fund policies on kids, how are they gifting money to the fathers ILIT to cover his life premiums in his ILIT?

Only way I can think this could be done is if the ILITs have different beneficiaries & thus more gifting room. Without the kids having their own kids yet, not sure it would open more gifting annually. Paying premiums is a gift to the ultimate beneficiaries of the ILIT, not a gift to the insured on a policy

Absolutely and I know his advisor/attorney has not mentioned that to him. I am trying to get all the facts before I raise the question/problem and offer solutions.

 

[Tahoe Ray]

I honestly dont think it would be uncommon for a mother to be the trustee of an ILIT that hold life insurance on the kids

The father's policy is in the same ILIT, that's why I mentioned it:

He has 2 policies on his own life which are owned by the ILIT - for estate tax purposes - which I get....but I'm just not comprehended why that ILIT would own the kids' policies.

 

[Allen Trent]

The father's policy is in the same ILIT, that's why I mentioned it:

yes, but I bet the wife isnt a beneficiary of the husbands ILIT either, so she could still be the trustee if kids or others are the ILIT beneficiaries. Wouldnt make a ton of sense to make a spouse the beneficiary of an ILIT as she would then potentially receive the proceeds & then owe estate taxes on the assets she held at her death

 

[Tahoe Ray]

yes, but I bet the wife isnt a beneficiary of the husbands ILIT either, so she could still be the trustee if kids or others are the ILIT beneficiaries. Wouldnt make a ton of sense to make a spouse the beneficiary of an ILIT as she would then potentially receive the proceeds & then owe estate taxes on the assets she held at her death

Somewhat derailing the thread but we're operating without all of the info. If the ILIT is for estate planning purposes (both die), you wouldn't want the spouse to be the trustee, especially if using joint assets to pay premiums.

 

[Allen Trent]

Somewhat derailing the thread but we're operating without all of the info. If the ILIT is for estate planning purposes (both die), you wouldn't want the spouse to be the trustee, especially if using joint assets to pay premiums.

I definitely know that can be an issue for 2nd to die as both are insured so it could cause potential inclusion in taxable estate if spouse who is an insured is also trustee. But have seen many ILITs where the spouse of the insured/grantor is the trustee while insured alive & even continues to be the trustee after spouse died as long as surviving spouse has very limited access to ILIT assets for health, maintenance & well being. Successor trustee many times is bank trust dept or an adult child

 

[T in CA]

Thanks for all of the great insights and input. I just took a look and the spouse is the trustee of the Husbands ILIT. AND, she is also the BENEFICARY followed by his children and future grandkids (Chidren's Issue").

Not sure if this sheds life and/or makes anyone scratch their head more...like I am. I have a call into a really good estate/tax attorney, but really appreciate the wisdom and feedback of this group!