For the past 30 years life insurance held in an Irrevocable Life Insurance Trust (ILIT) was the favored method of preserving a family’s wealth from the federal and state estate tax. Now that the federal estate tax exemption for a couple is, effectively, in excess of ten million dollars, a great number of those life insurance contracts and trusts may be ineffective.
Is it time to ‘bust the trust’, and remove the life insurance policy from the ILIT, or surrender the policy, or replace the life insurance policy with one with modern flexibility? It’s not an easy answer. Only a careful review of the life insurance contract, the trust, and your total estate plan (and financial position) can lead to the most effective solution.
Irrevocable Life Insurance Trusts implemented over the past thirty years absolutely must be reviewed by an attorney and insurance professional with experience in this area. If you are an owner or trustee of an ILIT, please call right away for a consultation.
The IRS has published the “section 7520” interest rates for the month of November, 2017, in Revenue Ruling 2017-21. The sec. 7520 rate is 2.4%. The section 7520 interest rate is used in a variety of computations for estate and gift tax purposes. Frequently, the difference between the section 7520 rate and an interest rate which more accurately reflects ‘real world’ interest rates (or more typically, projected rates of return on an investment portfolio, or the rate of appreciation of an asset), is the primary factor which allows various types of trusts and transfers to trusts to become tax-favored.