A Wait and See ILIT (Irrevocable Life Insurance Trust) strategy can provide an essential UHNW (ultra-high net worth) financial planning tool. Among its uses: funding life insurance needs inside an ILIT, even if clients have used up their lifetime exemptions. That’s because a properly designed loan from the client to the ILIT will satisfy IRS requirements for a commercially valid loan, eliminating the need to make taxable gifts.

After a lifetime of hard work, George Jackson recently sold his business for $100 million. George wanted to celebrate by giving each of his 19-year-old twin grandsons (Jack and John) a special $5 million birthday gift. George has asked his son, Mark, to reach out to their financial advisor for help in structuring the arrangement. Their goal: to minimize the tax implications and ensure Jack and John use the money wisely over their respective lifetimes.

Recent passage of The Tax Cuts and Jobs Act of 2017 (TCJA) increased the federal unified estate and gift tax basic exclusion amount from $5.49 million in 2017 to $11.4 million per individual and $22.8 million per married couple for 2019.

The Internal Revenue Service continues to litigate generational split dollar plans (GSD plan) arguing that Code secs. 2036(a)(2) and 2038(a)(1) require inclusion of the full face value of G1’s split dollar receivable. This article provides compelling arguments that a compliant GSD plan is not subject to those Code sections and that the plans should be entitled to a reasonable discount (similar to family limited partnerships). It also recommends that, until the law is more settled in this area, that plans be promoted assuming no discount.

We are pleased to announce that the following article by Robert W. Finnegan, J.D., CLU®, AEP®, was recently published in the April Trusts & Estates.

Sometimes strategies can be so simple and basic, yet powerful. For instance, leveraging prior gifts can go a long way in helping families plan for legacies and liquidity for their estate planning needs. That is, clients who have taken advantage of making gifts to a trust in the past have an opportunity to leverage those gifts with life insurance, provided they can be underwritten medically and financially.

Generational split dollar plans remain an extremely powerful planning strategy that, even without the benefit of deep discounts, can address non-tax liquidity needs, and act as an estate freeze technique for the first generation.