Michigan Irrevocable Funded Life Insurance Trust where Beneficiaries Have Crummy Right of Withdrawal with First to Die Policy with Survivorship Rider, or simply Michigan IIT with Crummy Withdrawal and First to Die Policy, is a specialized trust arrangement designed to maximize the benefits of life insurance policies for Michigan residents. This type of trust offers unique advantages and ensures efficient wealth transfer while minimizing potential tax liabilities and protecting assets for beneficiaries. The primary feature of this trust is the "Irrevocable" nature, meaning that once the trust is established, the granter relinquishes control over the assets contributed to the trust. By doing so, the assets will not be considered part of the granter's estate upon their death, resulting in potential estate tax savings. Another key aspect is the Funding, where the granter transfers life insurance policies into the trust. Typically, the trust is funded with a First to Die Policy, a joint life insurance policy covering two individuals (usually a married couple). This ensures that the death benefit is paid out upon the first death, providing liquidity to cover estate taxes and other expenses. The Crummy Right of Withdrawal provision refers to beneficiaries' ability to withdraw certain contributions made to the trust within a limited timeframe (usually 30 days). This provision allows the trust to qualify for the annual gift tax exclusion, making it a valuable tool for estate planning. It should be noted that the beneficiaries do not actually withdraw the funds in most cases, but rather allow them to remain in the trust and grow tax-free. The Survivorship Rider is an additional provision attached to the life insurance policy held within the trust. This rider ensures that the policy remains in effect even after the death of the first insured individual. As a result, the death benefit is paid out upon the death of the second insured individual, further enhancing the trust's effectiveness in preserving wealth and providing for beneficiaries. In addition to the Michigan IIT with Crummy Withdrawal and a First to Die Policy with a Survivorship Rider, there are variations of this trust structure available. These could include: 1. Michigan Irrevocable Funded Life Insurance Trust with Crummy Withdrawal and Single Life Policy: Similar to the First to Die Policy, this option utilizes a single life insurance policy rather than a joint policy. It may be suitable for individuals who are not part of a married couple or have specific estate planning needs. 2. Michigan Irrevocable Funded Life Insurance Trust with Crummy Withdrawal and Second-to-Die Policy: Unlike the First to Die Policy, a second-to-die policy ensures that the death benefit is paid out upon the death of the second insured individual. This type of trust might be suitable for individuals seeking to cover estate tax liabilities without depleting other assets during their lifetimes. In conclusion, the Michigan Irrevocable Funded Life Insurance Trust where Beneficiaries Have Crummy Right of Withdrawal with First to Die Policy with Survivorship Rider is a powerful estate planning tool used by Michigan residents to optimize life insurance benefits, protect assets, and reduce potential tax liabilities. Variations of this trust structure exist to cater to different circumstances and goals.
Michigan Irrevocable Funded Life Insurance Trust where Beneficiaries Have Crummey Right of Withdrawal with First to Die Policy with Survivorship Rider
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A special type of irrevocable life insurance trust, called a Crummey trust (aka irrevocable gift trust), allows a wealthy grantor to fund the trust in such a way that payments are treated as gifts of present interest to the trust's beneficiaries, thereby qualifying for the annual gift exclusion, then using the payments
A Crummey Trust allows you to take advantage of the gift tax exclusions and simultaneously minimize your estate taxes. You do not have to provide an opportunity for the beneficiary to withdraw the entire balance of the trust until a certain age. A Crummey trust can have multiple beneficiaries.
As the Trustor of a trust, once your trust has become irrevocable, you cannot transfer assets into and out of your trust as you wish. Instead, you will need the permission of each of the beneficiaries in the trust to transfer an asset out of the trust.
However, the cash value accumulating in a life insurance policy is free from taxation as is the death benefit. So there are no tax issues with having a policy owned in an ILIT.
Crummey Trusts and Crummey Powers Since the beneficiaries do not have to pay any income taxes when they receive the proceeds of the life insurance policy, the Crummey trust allows the transfer of considerable wealth tax-free.
Putting the life insurance policy in the trust can remove it from the grantor's personal assets. As an irrevocable trust, once the life insurance is owned by the trust, you can't take it back.
Crummey power allows a person to receive a gift that is not eligible for a gift-tax exclusion and then effectively transform the status of that gift into one that is eligible for a gift-tax exclusion. For Crummey power to work, individuals must stipulate that the gift is part of the trust when it is drafted.
As gifts to ILITs (or trusts generally) do not typically satisfy the present interest requirement, most ILITs will include Crummey powers that allow designated trust beneficiaries to withdraw all or part of the gift to the trust, up to the annual gift tax exclusion amount for each beneficiary, for a specified period of
Even an irrevocable trust can be revoked with a court order. A court may execute an order that permits the dissolution of a life insurance trust if changes in trust or tax laws or in the grantor's family situation make the life insurance trust no longer serve its original purpose.
The buildup of cash value within a policy owned by the trustee of an ILIT is wholly free from income tax. Even more important, the life insurance proceeds ultimately received by the trustee of the ILIT are not subject to the federal income tax.