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Top 10 Considerations for Estate Planning with Life Insurance
1. If a life insurance policy is owned by a trust, what is the ongoing maintenance required for the strategy to succeed most effectively?
a. Apply for a Tax ID (EIN) number from the IRS for the trust.
b. Set up a non-interest bearing checking account in the name of the trust. This account will be funded with cash to cover premium payments.
c. The grantor can assist the trustee with premium payments by making gifts to beneficiaries of the trust. This gift can be deposited in the trust checking account. Such gifts must be within the guidelines for annual exclusion gifts (currently the exemption amount is $14K).
d. Crummey v. Commissioner in 1968: the 9th circuit court decided in favor of Crummey stating that if a trust allows beneficiaries to withdraw the annual exclusion gift made, it falls within guidelines of IRC. Such freedom to withdraw gives the beneficiary a "present interest." This present interest is grounds for transfers to qualify for the annual gift exemption.
e. For each gift made to the trust, a letter called a "Crummey Notice" must be sent to each beneficiary alerting them of the gift and their right to withdraw for up to 45 days.
Top 10 Things to Know to Make the Most of Life Insurance in Estate Planning