Washington Irrevocable Life Insurance Trust - Beneficiaries Have Crummey Right of Withdrawal
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FAQ
When executing their trust, settlors generally name themselves as the sole trustee and beneficiary while they are living; this allows them to exercise full control over the trust and its assets during their lifetime, as well as to withdraw trust funds as they see fit.
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
Distributing assets from an irrevocable trust requires that the assets first be part of the trust's corpus. Tax laws allow trusts to recover the after-tax money locked up in the corpus as tax-free return of principal. Trusts pass this benefit along to their beneficiaries in the form of tax-free distributions.
Advantages of a Crummey TrustYou 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. Unlike some college savings plans, there are no penalties if the funds are not used for higher education.
An irrevocable trust is a very powerful tool for Medicaid Asset Protection, as it allows you to shelter assets from a nursing home after they have been in the trust for five years.
Removal by Trustee. Inform the asset-management company of the death of the settlor--the person who set up the trust. Beneficiaries must receive a notice informing them of their right to see the terms of the trust. The asset-management firm will request beneficiary information from you to disburse funds.
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.
An ILIT provides a number of advantages beyond the ability to provide a tax-free death benefit. This includes protecting your insurance benefits from divorce, creditors and legal action against you and your beneficiaries. An ILIT also avoids probate and shields assets from expense and loss of privacy during probate.
Can Creditors Garnish a Trust? Yes, judgment creditors may be able to garnish assets in some situations. However, the amount they can collect in California is limited to the distributions the debtor/beneficiary is entitled to receive from the trust.
Crummey powers give the beneficiary a limited time (often 30, 45 or 60 days) to withdraw contributions to a trust at will, converting the future interest gift to a present interest gift. This withdrawal right is generally limited to an amount equal to the current annual gift tax exclusion.