owR Sales Idea of the Month

Spousal Access Trusts and Indexed UL

For this month's sales idea, we wanted to provide an estate planning idea that fits in with the Indexed UL University owR OPINION has been running for the past 6 weeks. To view a replay of any of the sessions, please visit www.owropinion.com/register.

That idea is a Spousal Access Trust. The Spousal Access trust is a variation of the irrevocable life insurance trust that adds a bit more flexibility to the ILIT. That flexibility comes in the form of LIFETIME access by the noninsured spouse to the cash value of the policy held by the trust.

While we all know the advantages of using an ILIT, one of the traditional disadvantages of ILITs has been the inability of husbands and wives to access the cash value of policies help by the trust without adverse consequences. This issue has always been one of the objections to using cash value life insurance in an irrevocable life insurance trust. The spousal access trust is an answer to that objection.

How it Works:

With a spousal access trust, the noninsured spouse is named as one of the trust beneficiaries, along with the children. Premiums for the policy are paid by the trust via gifts to the trust from the grantor, just like an ILIT. The spouse can split the gifts to maximize use of the annual exclusion in conjunction with a Crummy Provision.

In a spousal access trust, the trustee is authorized to make distributions to any of the beneficiaries, INCLUDING the spouse, for their health, education, maintenance and support, the "HEMS" standard.

What's even better is that if we have a single life policy on for example, the husband, his wife can be the trustee. Thus, the non-insured spouse has direct access to policy cash values, but again, remember if a spouse is trustee any distribution must be limited to those related to health, education, maintenance and support. If there is a need or desire for discretionary distributions above the "HEMS" standard an independent trustee should be named.

A second to die policy can also be used in a spousal access trust, but if it is, neither spouse should be named as trustee, and only one spouse should be the grantor. In fact, any distributions made to the nongrantor spouse should probably be completely discretionary and be made by an independent trustee.

Example:

Click here to view a brief power point presentation used to explain this concept during the second session of owR's IUL University. This presentation starts with an explanation of the spousal access trust. The second part of this presentation briefly reviews the sales concept from the previous week, showing how to use the $5M gift exemption currently available in combination with both guaranteed and Indexed UL products. By using part of the gift to purchase an IUL that has cash value potential, and making that trust a spousal access trust as described above, clients may be more comfortable making a large gift knowing their spouse can access the cash value of the policies during their lifetime. Remember, the use of this $5M exemption is scheduled to expire at the end of 2012 and return to $1M.

Please contact your owR Marketing Representative for more information on a sales strategy or to discuss a specific case!