Life Insurance Trust (ILIT)

Life Insurance Trust (ILIT)

I have a Life Insurance Trust where my spouse is the Trustee and a Beneficiary along with 2 Children. Can money be transfered from a joint account to an account in the "name of the trust" to pay the premium? What impact does a transfer from a joint account have on the Trust?


Sounds like youre the grantor (settlor) of the insurance trust so you should gift money each year to the trust to pay premiums. If you wife is a trustee/beneficiary she should not gift money to the trust. Thus, the best approach is to have you transfer your gift to the trust from a separate not joint account. Then no issue is raised. You and your wife should maintain separate bank and/or brokerage accounts for a lot of reasons (asset protection, building credit history in both names, dividing assets to fund a by pass trust, etc.). So if you don't have separate accounts you probably should set them up. If its a joint account, what type of joint account? Who contributed money to the joint account? If its a joint checking account to which you both contribute money it may be impossible to tell whose funds they are. If your wife's assets solely funded the "joint" account, then on your withdrawal of funds its deemed a gift to you. But in this case might the IRS or a claimant assert that she indirectly contributed funds to the trust thus tainting the trust as a self settled trust of your wife's? Again, it might be quite possible to research the issue and fine a justification for using the joint account, but why bother risking it? Also, as the above noted, its not only a tax issue. It is also a creditor protection issue. Don't overlook that component.

Another point which you didn't ask about but which your question raises. Is your wife the sole trustee of the trust? This is not a great. If your wife is the mother of the kids and she is the only trustee and under the terms of the trust she can distribute money to pay for their care, and their minors (i.e., so she has a legal obligation under state law to support them) the assets of the trust might be included in her estate and the income earned by the trust taxable to her. Check with your estate planner and make sure this problem was dealt with, or you might have to take more serious actions.

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