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This is an irrevocable trust whereby the grantors (generally husband and wife) transfer a survivorship (second-to-die) life insurance policy to the trust. The trust will be the owner and beneficiary of the life insurance policy. The objective is to remove the policy from the taxable estates of both spouses. This will be accomplished if the transferors live three years from the date of transfer (to the trust as owner and beneficiary) of an existing life insurance policy, or if they have the trust become the owner and beneficiary of the policy from its inception.
Note that the beneficiaries of this trust are the children of the grantors. Neither spouse should have any beneficial interest in this trust.
The trust contains a Crummey power (Article 7(B)) designed to allow premium payments made by the grantors to take advantage of the gift tax present interest exclusion. There is also a “hanging power” contained in this paragraph 7(B) to enable funds for premium payments contributed by the grantors to the trustee to be eligible for deferred withdrawal by the beneficiaries in order to avoid being treated as “lapsing powers” that would involve unwanted gift tax consequences to the beneficiaries.
Article 7(C) contains the principal dispositive provisions – here directing the division of the trust property at the second death into equal shares payable outright to the children of the grantors, and to those heirs of any predeceased child. Grandchildren of the grantors must have attained age 35 to receive their shares; otherwise, such shares are held in trust until age 35 is reached, with increments of principal payable at ages 30 and 35. There are also provisions in Article 7 to protect an S corporation election, i.e. requiring that any S corporation stock that may be in the trust pass to an eligible S corporation shareholder upon any disposition of the trust principal.
Also included is "A Sample Notice Of Crummey Withdrawal Rights" for the trustee to send to the Crummey beneficiaries whenever a contribution is made to the trust.
Steven G. Siegel is president of The Siegel Group, a Morristown, New Jersey - based national consulting firm specializing in tax consulting, estate planning and advising family business owners and entrepreneurs. Mr. Siegel holds a BS from Georgetown University, a JD from Harvard Law School and an LLM in Taxation from New York University.
He is the author of several books, including: Planning for An Aging Population; Business Entities: Start to Finish; Taxation of Divorce and Separation; Income Taxation of Estates and Trusts, Preparing the Audit-Proof Federal Estate Tax Return, Putting It Together: Planning Estates for $5 million and Less, Family Business Succession Planning, Business Acquisitions: Representing Buyers and Sellers in the Sale of a Business; Dynasty Trusts; Planning with Intentionally-Defective Grantor Trusts; The Federal Gift Tax: A Comprehensive Analysis; Charitable Remainder Trusts, Grantor Trust Planning: QPRTs, GRATs and SCINs, The Estate Planning Course, The Retirement Planning Course, Retirement Distributions: Estate and Tax Planning Strategies; The Estate Administration Course, Tax Strategies for Closely-Held Businesses, and Tort Litigation Settlements: Tax and Financial Issues.
Mr. Siegel has lectured extensively throughout the United States on tax, business and estate planning topics on behalf of numerous organizations, including National Law Foundation, AICPA, CCH, National Tax Institute, National Society of Accountants, and many others. He has served as an adjunct professor of law at Seton Hall and Rutgers University law schools.
The Siegel Group provides consulting services to accountants, attorneys, financial planners and life insurance professionals to assist them with the tax, estate and business planning and compliance issues confronting their clients. Based in Morristown, New Jersey, the Group has provided services throughout the United States. The Siegel Group does not sell any products. It is an entirely fee-based organization. Contact the Siegel Group through its president, Steven G. Siegel, e-mail: firstname.lastname@example.org.
You may also be interested in the following form(s) and/or downloadable books:
Split Dollar Life Insurance Agreement (With Irrevocable Life Insurance Trust As Policy Owner) And Collateral Assignment Of The Policy To The Employer By The Trustee (11 Pages)