Wealthy clients are no longer concerned about the federal estate tax. However, now the focus hasshifted to the state estate tax. Estate planners are looking for a way toachieve many client goals with one tool to bring costs down and benefits forclients up. Many believe that the multipurpose irrevocable life insurance trust(MILIT) is the answer. The conventional approach to save on estate tax is abypass trust. Nevertheless, the bypass trust will not get an increase in thegain amount, which could result in the beneficiaries of the trust paying thebill. Some affluent clients have irrevocable life insurance trusts (ILIT). AnILIT is a common estate-planning tool used to safeguard life insurance proceeds.An ILIT shields the proceeds from creditors and preserves the proceeds forsurviving family members. Another common approach to save on estate tax is the Spousal lifetimeaccess trusts (SLATs). SLAT provides a means for a client to develop assets outsideof his estate, but still provides access of the assets to the beneficiaries. SLATproperty remains taxable and safeguards trust property. The client will pay thetax on his estate, but can develop his assets outside of his estate. UltimatelySLAT, reduces the size of an estate and thus the estate tax.
Estateplanners believe when you combine the advantages of the bypass trust, ILIT, andthe SLAT the MILIT is born. A MILIT does not have to abide by the state estatetax exemption. A MILIT provides protection for up to $5.25 million in assets. Moreover,clients can have a single trust as an alternative to three. For this reason, usinga MILIT may save clients money in legal costs and administration fees. Anotherbenefit the MILIT is while the client is alive the MILIT has the income taxshelter of a permanent life insurance policy, but after the client’s death, theMILIT provides money to family members with the lowest income. Anotheradvantage of a MILIT is that it is put in effect right away. This provides clients with an opportunity to address problems with the MILIT before death and avoid problems for heirs.
See
Martin Shenkman, Wealthy Need a New Trust Strategy, Financial-Planning.com, Mar. 1, 2013.
