Thursday, September 15, 2016

Choosing the Trustee of an ILIT

This is an Advanced Markets Minute provided by and used with permission from Mutual of Omaha - Advanced Markets

Despite higher exemptions, there are still clients who will face federal estate taxes. An irrevocable life insurance trust (ILIT) is still an effective solution to pay for federal estate taxes. The ILIT is a mainstay in the life insurance industry but selecting a trustee has become more challenging. 

Corporate trustees and banks traditionally served as trustee to ILITs. However, many corporate trustees are no longer willing to serve, at least prior to the death of the insured. This is particularly a problem when an ILIT only holds a life insurance policy or there isn’t an existing relationship with the insured.  

Some of the duties that a trustee of an ILIT must perform while the policy is in force include the following: 
  • Timely payment of policy premiums 
  • Create and send annual Crummey Notices to beneficiaries
  • Management of Split Dollar Arrangement (if applicable) 
  • Annual insurance policy review 
Because trustee duties involve administrative duties, fiduciary obligations and a good understanding of life insurance, it is prudent to employ a trustee that is experienced in administering ILITs. But if trust companies and banks are not willing to perform these duties, who is? 

Often family members or other professional advisors are asked to be the trustee of an ILIT. Family members are familiar with family dynamics and may know more about a family member’s history and specific needs which can make administering trust distributions a little easier. A professional advisor such as an attorney or CPA may be more familiar with the tax and legal requirements associated with an ILIT. So a good solution when you can’t find a corporate trustee or bank might be a team approach.  

Maybe the client appoints a relative or friend as the trustee and allows them to hire professional advisors to work with them. The professional advisors could handle the yearly notices; administer split dollar plans or gift tax filings, if necessary, along with policy oversight and review. This approach to trust administration may solve a client’s problem with finding a trustee willing and able to perform the important duties of managing the ILIT. 

Contact Partners Advantage for complete Advanced Markets assistance at 
888-251-5525, Ext. 700

For financial professional use only. Not for use with consumers.

This is for informational purposes only.  Recommendations for financial product or financial strategies must be suitable for the individual based on their circumstances. Mutual of Omaha does not give tax advice.

The advice provided in this communication is not intended or written by the practitioner to be used and may not be used by you for the purpose of avoiding penalties that may be imposed by the IRS or any other taxing authority.

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