At Morris Law Group, we can assist you in setting up a customized Wealth Preservation Solution to meet your unique wealth preservation goals. One way to protect your assets and ensure that they are preserved for your beneficiaries is through an irrevocable trust. These trusts are commonly designed to hold assets that will be outside of your taxable estate for estate tax purposes.
Annual Compliance Requirements for Irrevocable Trusts
In order to maintain the integrity of the trust, as well as reap the estate and gift tax benefits, there are compliance actions that need to be taken on an annual basis. With respect to trusts that hold life insurance, if the cash flow needs of the trust exceed the annual exclusion gifting threshold, Split Dollar Arrangements and other techniques are used to avoid or minimize gift taxes.
The 2020 gift tax exclusions amount is $15,000 per individual and $30,000 for gifts made by a married couple to each donee. In order to pay the premiums, you, as the Grantor, can contribute an amount directly to the trust, and the trust will then pay the premium when it’s due.
The contribution to the trust for the insurance policy will not qualify for the gift tax exclusion unless the trust grants the trust’s beneficiaries certain limited rights to the gifted assets (these are known as “Crummey” withdrawal powers). If the trust contains these beneficiary withdrawal powers, it is essential that the beneficiaries receive Crummey letters (notice of withdrawal right) whenever a contribution is made to the trust.
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Our team will oversee the timing, preparation and verification of the required documents including these Crummey letters to confirm all necessary formalities are being met with irrevocable trusts. Please be advised that failure to properly document these transactions on a timely basis may result in increased gift and estate taxes.
If you are interested in designing a customized Wealth Preservation Solution, or what we call a Generational Planning SolutionSM that can be put into place to give you and your loved ones peace of mind that your legacy will last for generations, contact Morris Law Group and schedule a consultation with one of our top estate attorneys. Download our Irrevocable Trust Annual Compliance Activities handout here.