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

[Allen Trent]

is also the BENEFICARY followed by his children and future grandkids (Chidren's Issue").

Are you sure she is a beneficiary that would receive all or a share of the ILIT assets or is she merely an income beneficiary during her life for health, education maintenance, income & support & possibly 5% of principal per year? I would be very surprised if she is an ultimate beneficiary that would receive say 100% of the ILIT assets without stipulations within the laws to keep it from being added into estate tax calculation

 

[T in CA]

Are you sure she is a beneficiary that would receive all or a share of the ILIT assets or is she merely an income beneficiary during her life for health, education maintenance, income & support & possibly 5% of principal per year? I would be very surprised if she is an ultimate beneficiary that would receive say 100% of the ILIT assets without stipulations within the laws to keep it from being added into estate tax calculation

I think you have it right. Thanks! Still can't figure out why it would own the policies on the kids, thought...

 

[Allen Trent]

I think you have it right. Thanks! Still can't figure out why it would own the policies on the kids, thought...

Likely to keep it out of dad or moms taxable estate at their death or to avoid a gift tax if they changed ownership from parents to kids when they are adults.

No cost to create the ILIT that exists already & the ILIT appears to have the beneficiary flow that you might put on policies anyways : Parents as Primary, future children per stirpes as contingent beneficiaries (IE: following the family tree).

only unknown you havent mentioned about the ILIT--if 1 of the child policies were to have a death claim when they have their own children, I am guessing the ILIT doesnt state to pay the grandchildren those funds as the mom would be an income beneficiary, then the siblings of the insured & wouldnt get to the next generation of the deceased child

 

[T in CA]

Likely to keep it out of dad or moms taxable estate at their death or to avoid a gift tax if they changed ownership from parents to kids when they are adults.

No cost to create the ILIT that exists already & the ILIT appears to have the beneficiary flow that you might put on policies anyways : Parents as Primary, future children per stirpes as contingent beneficiaries (IE: following the family tree).

only unknown you havent mentioned about the ILIT--if 1 of the child policies were to have a death claim when they have their own children, I am guessing the ILIT doesnt state to pay the grandchildren those funds as the mom would be an income beneficiary, then the siblings of the insured & wouldnt get to the next generation of the deceased child

I see that, but he same people who advised him to move the policies into his ILIT have not advised him to pay the premiums from the ILIT...so he is still writing checks from joint assets in his estate. Plus, he is doing the same for the other large policies where he is the insured. I kind of think there are some issues here which would/will bubble up in terms of gift taxes, etc...

 

[Tahoe Ray]

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

HEMS clauses help but there is still a real risk having "control" over the trustee as the grantor.

Much cleaner having a trust dept but I agree, I see it often too. Just not ideal.

 

[Allen Trent]

I see that, but he same people who advised him to move the policies into his ILIT have not advised him to pay the premiums from the ILIT...so he is still writing checks from joint assets in his estate. Plus, he is doing the same for the other large policies where he is the insured. I kind of think there are some issues here which would/will bubble up in terms of gift taxes, etc...

Wowza. Him paying insurance company directly without first gifting the money to the trust to pay insurance company kind of contradicts the main purpose of an ILIT. Plus, based on what you are saying, I would assume they are not issuing annual crummey letters to make sure the annual gift is considered present gifts to the ILIT

Does Your Life Insurance Trust Need a Checkup? - Goldstine, Skrodzki, Russian, Nemec and Hoff, Ltd.

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[T in CA]

Wowza. Him paying insurance company directly without first gifting the money to the trust to pay insurance company kind of contradicts the main purpose of an ILIT. Plus, based on what you are saying, I would assume they are not issuing annual crummey letters to make sure the annual gift is considered present gifts to the ILIT

I don't believe so...I need to point this out to him.