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8 J. Pract. Est. Plan. 15 (2006-2007)
Exit Plans for Financed Life Insurance: Preparing to "Cross That Bridge" before Coming to It

handle is hein.journals/jrlpep8 and id is 183 raw text is: Editor's Choice Exit Plans for Financed Life Insurance: Preparing to Cross That Bridge Before Coming to It C2006 D.W. Holaday By David W Holaday David Holaday discusses and compares design alternatives for using GRATs and sales to IDGTs as exit strategies for financed life insurance arrangements. Introduction Planners frequently recommend life in- surance to individuals with large estates to provide a source of funds to pay estate taxes, equalize family benefits and meet other estate liquidity needs. To place a large life insurance policy with large premiums, one must determine how to find the cash to pay the premiums and how to get the premiums out of the estate without a gift tax problem. A short-term solution could be to have the entity that will own the insurance (e.g., the ILIT) borrow the funds either from a third-party lender or from a closely held corporation under a split dollar arrange- ment. However, the longer the insured lives, the more money it will take to pay off the lender and the less likely it is that the strategy will achieve its wealth transfer objective. Therefore, planners should con- sider implementing a companion wealth transfer strategy implemented contempora- neously with the acquisition and financing of the policy that will provide the means to exit the financing arrangement and, if needed, pay future premiums. This article will examine and compare the design and funding considerations of using a grantor retained annuity trust (GRAT) and a sale to an intentionally defective grantor trust (IDGT) as alternatives for transferring assets to the owner of the life insurance policy for the purpose of removing any encumbrance to the policy. This article is organized into three parts: Part 1-Premium Financing Over- view * Part 2-Introduction to GRATs and Sales to IDGTs Part 3-Design Concepts for Exit Strategies Part 1-Premium Financing Overview Financing premiums using institutional funds assets from a family-controlled entity can overcome two significant obsta- cles for clients with significant insurance needs. First, insurance premiums must be David W. Holaday, ChFC, is Founder and President of Wealth Design Consultants, LLC based in India- napolis, Indiana and serving clients nationwide. The company provides sophisticated estate and charitable design, analysis and client presentation services to financial advisors and attorneys. He can be reached at (888) 703-3900 and www.wdcplan.com.

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