As we are all aware, our industrious leader, Donald Trump, has dented the legacy planning business with his Estate Tax revision effective in 2018. But there is a big question as to whether Trump can hope to be re-elected for a second term with all the vitriol. If he is unsuccessful, it would seem likely that the growing deficit (driven by social programs) will result in a revision in an effort to capture more tax revenue.
However, despite the tax revision, the use of the Irrevocable Life Insurance Trust in legacy planning, continues as a strong planning tool for the following reasons:
1. Trump only eliminated the Federal Estate Tax. So for Connecticut and New York (to name two), State Estate Taxes remain and are still significant.
2. The larger Life Time exemption if we elect a new president is probably only for a 3 year window of use. S0, USE IT! OR LOSE IT!
3. The ILIT is still the most simple, tax efficient structure to transfer cash assets, especially if they will never be used, to the next generation and beyond in an overfunded life policy.
4. The ILIT, if properly drawn, can be flexible, and also address the “entitlement” issue with effective language and trustee control.
5. Clients should know that proper planning with an ILIT can address uncertainties of children, and the children’s children who may have the challenge of life time disabilities. Why not plan for this potential?
6. Leaving the planning to future years simply reduces the dynamic leverage of the annual gift, and/ or the advanced use of the Life Time exemption.
7. And finally, things have changed and will continue to change. Taking an inventory with a client, reviewing their current plans and Life policies is prudent. And then there is the future.
The Life Insurance Trust is still a strong yet simple planning vehicle, with significant tax leverage. Change is constant, and should suggest that a review and update is needed.