The AE Team
Irrevocable Life Insurance Trust
- What is an Irrevocable Life Insurance Trust?
- Why use life insurance to pay estate taxes?
- How is life insurance “structured” to avoid taxes?
- Do you have to use an Irrevocable Trust to own life insurance?
- Why use an Irrevocable Trust?
- How does an Irrevocable Life Insurance Trust work?
- Are there any limits to the gifts made each year?
- What does the Trustee do with the gifts received?
- What happens when the Grantor (Insured) dies?
- What if Congress changes the exemption amounts?
What does the Trustee do with the gifts received?
Upon receipt of any gift, the Trustee must notify each beneficiary of his or her “Crummey” withdrawal right. With a Crummey withdrawal power, each time a contribution is made to the trust, the beneficiary has a temporary right to demand withdrawal from the trust. If the demand right is not exercised, the annual transfer for that year remains in the trust for management by the trustee. If the demand is made, the Trustee must deliver the funds to the beneficiary. However, the beneficiary generally will recognize that such a withdrawal may affect the grantor's decision as to future transfers to that Trust and the beneficiary may therefore not make a demand. Once the withdrawal right lapses, the Trustee is then free to use the monies, which were contributed to pay the premiums on the life insurance policies.
The name "Crummey trust" comes from the name of a party to a lawsuit, Crummey v. Comm., 397 F.2d 82 (9th Cir. 1968).