It wasn’t too long after I turned my face from home and toward the world that I bumped into the reality of having to fend for myself at mealtime. With few culinary skills and less patience I quickly adopted the philosophy that if something took longer to make that it did to eat, then the dish wouldn’t have a place on my bill of fare. The practice is still my prime directive when left to my own devices for the next feed.
That’s not to say I don’t appreciate higher cuisine when those with greater skill and patience are willing to attend. Nor that aptitude goes unnoticed when the one who prepares a multi-course, multi-dish spread with its varying cook-times and procedures manages to make everything come out in a coordinated manner at the right time.
But it’s really not any different when we are involved in an insurance sale where the policy is to be owned by an irrevocable trust.
The important difference is that you don’t have control over all the elements.
It usually goes something like this:
- The clients do not want to spend money on a trust till they know they can get insured.
- Once they get an offer they meet with an attorney to:
- Figure out what they want.
- Instruct the attorney to draft the trust.
- The attorney is as slow as molasses in January.
- The clock is ticking on the carrier’s offer.
- The deadline comes and the trust ain’t done. Sometimes we are able to get an extension on the offer only to find the attorney is even slower than molasses in January.
Despite the fact that the information on the trust that will be the owner and beneficiary of the policy is unknown, work can begin on processing and underwriting.
Simply have the insured/creator of the trust sign the app as insured in all necessary places. For owner and beneficiary put “trust TBD”. Because the application becomes part of the policy it will be necessary to submit a new Part I prior to issue and after the trust is established with the trustee signing as owner and the trust designated as the beneficiary.
It the worst happens and the trust is not completed before the deadline for delivery then one of two common scenarios usually plays out. If a grantor trust is anticipated the insured can accept ownership and later sell the policy to the trust. Because it is not gifted there is no 3-year look-back. Because it is a grantor trust there is no transfer-for-value. Some choose an alternative strategy wherein a “surrogate owner” is used who will eventually gift the policy to the trust. This is dicey. There is no guarantee the surrogate will, in fact, gift the policy at the appointed time, let alone the proceeds if the insured dies too soon. In either case there could be significant estate or gift taxes due.
The best approach is, once a medical offer makes the need for a trust evident, to hire an attorney who will confirm in writing that he or she will get the job done in a timely manner.