Based upon recent IRS guidance, Grantor Trust status is a powerful tool in providing estate planning flexibility.
An oft used planning tool is the Irrevocable Life Insurance Trust or ILIT. Typically a parent, referred to as the Grantor, establishes an ILIT and names someone else as the Trustee.
The Grantor makes gifts of cash to the ILIT and the Trustee of the ILIT uses the cash to purchase and pay premium on a life insurance policy that typically insures the life of the Grantor. When the Grantor/insured dies, the life insurance policy pays a death benefit to the ILIT. The Trustee of the ILIT has the ability to use the death benefit proceeds to provide liquidity for estate taxes that may be due when the Grantor dies.
Often, an ILIT can prove an inflexible planning tool because as the name implies, it is an irrevocable trust, which generally means it can not be changed. In addition, ILITs will often hold a single asset – namely the life insurance policy.
But what happens if the law, relationships or circumstances change? The topic involves a larger discussion but in one area, the IRS has provided additional guidance for one type of planning solution referred to as a Grantor Trust.
To learn more you can read more about two recent IRS Private Letter Rulings here & here.
Rodnunsky & Associates is equipped and regularly counsels clients on the many tools available in creating a comprehensive estate plan. For additional information on how the issues discussed here may be applicable to your situation, please contact Don Sweet, Esq. at 650-285-5400.
Information provided in this post is for informational purposes only and is not intended, nor may it be relied upon, as legal or tax advice. Always consult professional counsel.
