by Guest » Wed Jan 20, 2010 09:15 am
I had consulted my life insurance agent regarding establishing an ILIT, a few days back. He's explained and suggested that I'd need to buy a new life insurance policy. Now, I'd like to know if I could transfer the policy that I already have to my ILIT.
Posted: Fri Jan 22, 2010 10:18 pm Post Subject:
If there's no ILIT, there's no point in applying. Too many possible problems
I disagree with this. The reason is that an ILIT isn't cheap to establish and it is possible for the person to get turned down for insurance or the rates to be too high. Here's a different way to handle it. Get agreement from everyone that the insurance will go into the ILIT. Have the individual apply for coverage. When it's approved, don't accept the policy. Set up the ILIT. Reapply for coverage with the ILIT as the owner and beneficiary.
If the lawyer or something is going to hold up the insurance purchase, don't let this happen. Have the client buy more coverage than needed. They can personally own it. The extra can be a term rider. Once the lawyer stops dragging his feet, the existing policy can be put into the ILIT. If death occurs too soon, it will be part of the estate, but because of the extra coverage, the client's family will be fine.
I've seen too many cases that got blown up waiting for an ILIT to get established.
Posted: Sat Jan 23, 2010 04:34 am Post Subject:
Yes, that makes sense, my post was kind of a rash reaction to the suggestion that if you have already applied and don't have an ILIT you should try to get the ILIT quick and change everything over before issue.
Posted: Sat Jan 23, 2010 04:37 am Post Subject:
Underwriting for a second-to-die case usually takes about 2 months. There is no way it should take 2 months for a lawyer to set up an ILIT. If the application is completed stating the beneficiary is to be placed in trust and changed to the ILIT upon delivery, there shouldn't be any issues.
Posted: Sat Jan 23, 2010 09:04 pm Post Subject:
It shouldn't take 2 months for the lawyer. The problem with taking care of the ILIT first is that if the insurance gets declined and/or is too expensive, the client is going to have to still pay for a useless ILIT. Also, although it could always take a couple of months to get a policy approved, if everything is pretty clean, it could also get done in a week or two.
The problem with just changing the beneficiary to the trust is that the trust won't be the original owner. This would make it part of the taxable estate if death occurs too soon. It is best for the trust to be the owner from the getgo. You just don't want the setting up of the trust to delay the process.
Posted: Sun Jan 24, 2010 03:00 am Post Subject:
The ILIT is not subject to the 3-year contemplation of death if the application states the owner will be the ILIT without specifically naming it (since it doesn't exist yet, obviously). As long as the owner is changed to the specifically named ILIT before the policy is issued and signed for, it should be fine. Most people looking for second-to-die for estate planning policies will set up an ILIT despite the cost because they need it even if the insurance comes back more expensive than intended. Very few people will decline to take the coverage, most will just take a lower amount to fit their budget if the underwriting is worse than projected. You would have to have two VERY unhealthy people to have both be declined....even people who would be declined on their own can still get coverage on second-to-die depending on the health of the other person.
Posted: Sun Jan 24, 2010 03:33 am Post Subject:
Once you'd get a new life insurance, then it's original application is supposed to get signed by your ILIT trustee.
I don't think it can happen this way. All the required signatures happen before underwriting and policy issue, not afterwards.
Posted: Sun Jan 24, 2010 02:53 pm Post Subject:
dgoldenz, I don't understand what you are saying. The application must be signed by the owner. If the ILIT is going to be the owner, one can't just state that the ILIT will be the owner.
Lots of time if the underwriting comes back worse than expected, the ILIT may not make sense. For instance, let's assume that we're using a Guaranteed UL policy. We expect it to be issued Standard + and as such, it works out to be a 6% return if the insured(s) live another 20 years. The policy may come back Table B and at 20 years, it comes out to a 4% return. It may then make more sense to gift the money, but invest it instead of buying life insurance.
As an aside, in most circumstances, I'd rather see the insured's get two separate policies for half the amount than one 2nd to die policy. If there is a decent amount of time between deaths, this can lead to there being far more money.
Posted: Sun Jan 31, 2010 08:02 pm Post Subject:
Sorry it took me so long to respond to this, haven't been on here in a bit.....the application is completed by the insured with the beneficiary as "to be placed in trust", and then after the ILIT has been set up and the policy is ready to issue, a new application citing the ILIT as the owner and beneficiary is completed and sent in. This allows the underwriting to be completed while the ILIT is set up and avoids the problem of the 3-year contemplation of death rule.
Posted: Sun Jan 31, 2010 10:59 pm Post Subject:
dgoldenz, makes perfect sense. Thanks for the clarification.
Posted: Mon Feb 01, 2010 09:41 pm Post Subject:
No problem.
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