Three factors can increase the grantor
's retained possession interest, thereby providing greater gift tax savings: a shorter grantor
life expectancy, longer term, and higher Section 7520 rate.
If the ILIT has not been structured as a defective grantor
trust, then additional care should be taken.
For example, a revocable living trust is a grantor
trust (income taxed to the grantor
) and included in the grantor
would also be liable for applicable gift taxes if any trust assets were distributed to beneficiaries during the grantor
's lifetime, or if the grantor
transferred his or her ownership interest in the trust.
Another way to make an ILIT more flexible is to provide someone other than the grantor
with a lifetime LPOA to distribute trust income or principal (e.
If the grantor
structures the GRAT trust for 5 years, the grantor
must live 5 years and one day; the grantor
must outlive the trust period.
who retains certain interests in a trust he creates may be treated as the "owner" of all or part of the trust and thus taxed on the income of the trust in proportion to his ownership.
If the grantor
becomes disabled due to legal incompetency or physical incapacity, a designated successor trustee steps in to manage the grantor
's financial affairs.
This large-loan technique, while very effective in some situations, will not work if the grantor
does not have liquid assets or if the grantor
/insured is of advanced age, malting the 9-pay premium too large.
Because the grantor
has relinquished rights to the property, the transfer is subject to gift tax; income tax on the income from the trust property is paid either by the trustee for the trust or by the beneficiaries (unless the trust is a grantor
trust); and the property is not pulled back into the grantor
For instance, where family control of a business or a specific asset is important, the grantor
will want to limit the class of beneficiaries and prevent recipients from disposing of property to persons outside the family.
During the grantor
's lifetime, the gun trust's benefit is that the grantor
has a vehicle to own title to his firearms in case of incapacity, and also aids in inventorying the grantor
's collection during life.