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May 1, 2005 12:00 PM
Premium Financing Solutions
Many wealthy clients and owners of closely held businesses need to acquire a substantial amount of life insurance to provide liquidity to pay for their estate taxes. Life insurance provides substantial cash shortly after death, which is needed to pay the estate tax. These clients may establish an irrevocable life insurance trust (ILIT) to be the owner and beneficiary of the policy. By using an ILIT as the owner and beneficiary, the client can avoid having incidents of ownership in the policy and therefore avoid estate tax on the death benefit payable under the policy.
A key challenge is determining how the ILIT will pay the premiums without the clients having to make substantial taxable gifts. Premium financing is frequently proposed — and initially it appears to be an attractive solution. The ILIT borrows the premiums from a lender and the client's gift to the ILIT is limited to the annual interest costs on the loan. The minimal cash flow required makes the client happy; the well-collateralized (and often personally guaranteed) loan makes the lender happy; and the liquidity for estate taxes makes the client's estate-planning advisors happy.
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Topics of Interest
| Estate Tax | Donor Advised Funds |
| GSTs | Family Offices |
| Private Foundations | Life Insurance |
| 2010 Tax Act News | Industry Trends Surveys |
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Topics of Interest
| Estate Tax | Donor Advised Funds |
| GSTs | Family Offices |
| Private Foundations | Life Insurance |
| 2010 Tax Act News | Industry Trends Surveys |
E-Newsletter Signup
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