Knowledge and Insights

On Wednesday, September 13th, the House Ways & Means Committee released legislative text containing a number of significant tax change proposals. One proposed change affects the use of Grantor Trusts for estate planning purposes. This change would affect the future funding of life insurance trusts and could result in life insurance within life insurance trusts being part of your taxable estate. The proposed change would be effective on the date the new law passes (if it passes).

So the question is what if anything should you do now and what if anything should you do if the bill passes? This is a challenging question because we are still planning for a moving target, so you do not want to do anything now that will adversely affect you if the law does not change or changes in a different way.

What if anything should you do now? At this point, the only action that we are suggesting is for clients to consider advance funding their life insurance trusts now, if possible. The specific funding level will depend on your personal situation, your liquidity, impact to your overall estate plan, and your remaining lifetime exemption. Each situation is a little different, so if you are interested in exploring this now we should discuss further as soon as possible since this option closes once the bill is passed and may close earlier if the effective dates are accelerated. At a minimum, it would probably be a good idea to gift to the trust now any funds needed to fund 2021 and 2022 premiums so that you have time for the dust to settle and for us to answer the second question addressed below.

What if anything should you do after the bill passes? This is the big question and will depend on what actually passes and how it affects grantor trusts, including life insurance trusts. There is a great deal of speculation that there will be ways of rehabilitating the life insurance trusts, but at this point it is only speculation. We believe that when the dust settles there will be ways to rehabilitate the far reaching impact of these changes on life insurance trusts. Our belief is at least somewhat based on the strength of the life insurance industry that relies on the trust structure as a key economic driver for the policies that they sell. But, stay tuned on this…

Please contact us if you would like further information or to understand how the proposed legislation could impact your personal situation.

DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought. It is possible that if additional information from the SBA, Treasury Department and/or your lender is forthcoming, our observations and comments noted herein could be materially different.