SilverLink - Winter 2008 - (Page 32)

1. Grantors – Mr. Client and Mrs. Client are the Grantors. 2. ILIT – An Irrevocable Life Insurance Trust will purchase and own survivorship life insurance on Mr. Client’s and Mrs. Client’s life. A new trust will need to be established. Variations and Observations • The lender may be the insureds, a family member or an existing trust, partnership or another closely related entity that has the funds to lend the premium payments. If an existing trust lends the money (such as a credit shelter trust), the trust can lend the ILIT the funds for the premiums. Alternatively, the trust can be used in the future to repay the loan principal if repayment occurs before death. When due, the loan can be renewed for another nine-year period, if desired. Consideration should be given as to whether loan interest should be paid annually or accrued. In most cases, notes will have loan interest paid by the ILIT annually. The interest paid by the ILIT returns to the lender. If liquid assets aren’t available to lend, a commercial loan may be obtained and then used to finance the strategy. Alternatively, the ILIT itself can borrow from a commercial lender. 3. Loan Premium – Mr. Client and Mrs. Client will make a series of loans to the ILIT to fund the premiums on an annual basis. • 4. GRAT – Allows the Grantor to gift appreciating assets to a trust with minimal or no gift taxes for life or for a specified term. – If trust assets appreciate at a rate greater than the IRC Section 7520 rate, currently 5.0% for December 2007, the remainder interest will flow to the ILIT. If death occurs prior to the end of the GRAT term, the assets revert back to the Grantor’s estate, but the life insurance proceeds will be outside of the estate. A two-year GRAT term is typically used to provide maximum flexibility. • • – • – 5. Gift – When the GRAT is established, the Grantor makes a gift of the remainder interest to the GRAT beneficiaries. – The value of the gift is the fair market value of the asset minus the Grantor’s retained interest (the annuity payments). A zero gift design can be used. The assets transferred to the trust may be discounted due to lack of marketability and minority interests. Summary Transferring wealth and providing estate liquidity can be accomplished without first having to pay gift taxes. It requires a careful examination of whether the use of privately financed life insurance makes sense in the context of the successful family’s wealth snapshot. If current holdings are appreciating at a predictable and attractive rate, the privately financed life insurance becomes even more attractive. As a founding firm of M Financial (www.mfin.com), SilverStone Group has access to proprietary life insurance contracts and riders designed exclusively for privately financed life insurance strategies used by ultra-high-net-worth families across America. If you would like to model the strategy based upon your specific family wealth snapshot, you may contact Jeff directly at SilverStone Group. – 6. Annuity Income – The Grantor retains an interest in the asset in the form of annual annuity payments. The income is not taxable. 7. Remainder to ILIT – Provided the GRAT is structured so that the retained annuity’s actuarial value is equal to the value of the property transferred, the remainder interest can be transferred to the ILIT with minimal transfer tax. 8. Loan Repayment – Once the ILIT receives the remainder interest, assets should be available to repay the loan obligation to the Grantors. If insufficient assets exist, a second GRAT may be established and the process repeated until sufficient assets have been transferred to retire the loan. contact jeff sharP at 402.96 4.5 4 40 or jsharP @ ssgi.coM 32 http://www.mfin.com

Table of Contents Feed for the Digital Edition of SilverLink - Winter 2008

SilverLink - Winter 2008 Contents Risk Management: Where in the World is Human Resource Consulting? Workers’ Compensation Rate Declines Insurance Certificates Haute Retirement It All Began with a Cup of Coffee Playing Fair in the Housing Market Captives 101 Proceed with Caution Fore! (Or is it Pull? or Giddyup?) Don’t Be Fuelish Employee Benefits: Medical Trend Countdown to Compliance Private Client Services: Buy & Sell Agreements Flood Insurance Pushing Wealth to the Next Generation Client Spotlight: Travel and Transport Internal Happenings: SilverStone Group Giving Back Since 1945

SilverLink - Winter 2008

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