I Hate the Trustee of My ILIT!

Gallo, Jon J.
December 2004
Journal of Financial Planning;Dec2004, Vol. 17 Issue 12, p28
Academic Journal
This article deals with the guidance issued by the U.S. Internal Revenue Service (IRS) concerning the tax consequences of a retained power to charge trustees of an irrevocable life insurance trust. Between 1989 and 1993, Revenue Ruling 79-353 and TAM 8922003 were the subject of extensive discussions and correspondence between the IRS and representatives of professional organizations such as the American Bar Association and the American College of Trust and Estate Counsel. In response to these discussions, the IRS provided a safe harbor in early 1993. Back in 1977, Revenue Ruling 77-1H2, 1977 C.B. 273 had held that a decedent's retained power to appoint a successor corporate trustee only if the original trustee resigned or was removed by the court was not a power that would result in attribution of the trustee's powers to the decedent. In late 1993, the Tax Court refused to follow Revenue Ruling 79-353 and held that the power to remove and replace corporate trustees does not result in the power-holder being deemed to possess the powers of the trustee. The most recent word on the subject from the IRS is Revenue Ruling 95-58 and modified Revenue Ruling 77-182 to hold that even if the insured had possessed the power to remove the trustee and appoint an individual or corporate successor trustee that was as not related or subordinate to the insured, the trustee's powers would not be attributed to the insured. INSET: Sample Clause for the Removal and Replacement of Trustee.


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