Insurance Trust (irrivocable)

[BOB W]

Client called today, he has an irrivocable life insurance trust for himself funded with whole life on him. He recently got married and wants to create a second to die insurance life insurance policy trust with his wife (irrevocable trust).

Question>

1- Can his existing trust be amended to be a joint trust with is wife and a new policy exchanged within the trust?

2- If not, Can the cash value be transfered to a new joint trust/policy?

[Burke]

Probably not. The life insurance trust is irrevocable, which means he cannot revoke it. It is irrevocable because he wanted to remove it from his estate. Generally, these are set up to generate funds to the beneficiary to allow them to pay the estate taxes at TP's death. You need to have him talk to the insurance company that issued the policy, and the lawyer who drew up the trust. The trust is the owner, who is the trustee? They can counsel him on how to make changes that will suit his current situation.

[BOB W]

His brother is the trustee.

His wife in now having their first baby and that is who will be the new beneficiary.

He is waiting for the lawyer to get back to him and ask me what I knew about any tax consequences if the $200,000 CV is withdrawn to set up a joint trust with his wife. Both earn in excess of $450,000 each, per year.

[ED SMITH]

Can he not just change the beneficiary? Most insurance policies allow for the addition of unborn children.

Removing the money would essentially bankrupt the trust, which IMO would be a revocation. At best it would probably require filing a gift tax return, at worst there could be some kind of penalty. Trust laws vary from state to state, so that makes a general answer impossible. However, you might want to call the IRS TPP line 866-860-4259 and ask to speak to 'Tax Law'. They will research it and get back to.

Otherwise, I would just say to the lawyer, that trusts are not your area of expertise and he should consult with a Certified Retirement Planner or an probate attorney versed in trust tax law.

This is a very complicated area and one that you should not be getting involved with as this article shows:

http://www.lentzlaw.com/CM/Articles/Articles5.asp

[BOB W]

Thank you all for your feedback.......I guess my best advice to this client is to go by what the attorney says.. But I would say to put the life insurance on reduced paid up basis and leave the trust alone. If he wants to set up an trust with his wife set up a new one...........

Thanks again