egies, they are interested in a spousal
limited access trust. It provides lifetime
access to cash values for June (the non-grantor spouse) and the children, while
keeping the death benefit outside of the
estate and providing creditor protection
for June and their children.
Their financial advisor recommends
purchasing an indexed universal life
insurance policy with an initial death
benefit of $1.1 million. The SLAT will
own the life insurance policy upon issue of the contract, and June will act
as trustee. As trustee, she may distribute funds from the trust to herself or
the children for their health, education,
maintenance and support.
John will fund the policy at $50,000
annually for 20 years until he retires.
John and June “gift split” money to the
SLAT in the amount of the annual premium, allowing it to be covered by their
annual exclusion amounts. June can’t
make direct gifts to the trust without
creating an incident of ownership.
The Smith’s decision point is when
John retires at age 65. At that point, they
have three choices: 1) take distributions
annually from the policy for the health,
education, maintenance or support of
the spouse and children; 2) take no annual distributions and use the cash value
for future expenses; or 3) take no distributions from the policy and use the
death benefit for estate tax purposes.
The accumulation SLAT can create
flexibility for clients given the eventual
life changes married couples face. It can
create liquidity for estate tax purposes,
a source of supplemental retirement income, or a source of funds for unexpected or expected expenses.
Channing T. Schmidt, J.D., CFP, is
advanced marketing counsel at
Minnesota Life and Securian
Financial Group in Saint Paul,
LifeHealthPro.com / LIS / August 2012 35