Illinois Termination of Grantor Retained Annuity Trust in Favor of Existing Life Insurance Trust
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How to fill out Termination Of Grantor Retained Annuity Trust In Favor Of Existing Life Insurance Trust?
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FAQ
The annuity amount is paid to the grantor during the term of the GRAT, and any property remaining in the trust at the end of the GRAT term passes to the beneficiaries with no further gift tax consequences.
Most ILITs do not have taxable income and therefore do not require an income tax return. In terms of gift tax reporting, if you transferred an existing life insurance policy to the ILIT, a gift tax return may be required to inform the IRS of the transfer (gift) of the life insurance policy to the ILIT.
One easy way to terminate a life insurance trust, the grantor to stops making the premium payments, known as gifts, to the trust. If the grantor stops making payments to the trust, then the policy will lapse. This causes the purpose of the trust to be eliminated.
To implement this strategy, you zero out the grantor retained annuity trust by accepting combined payments that are equal to the entire value of the trust, including the anticipated appreciation. In theory, there would be nothing left for the beneficiary if the trust is really zeroed out.
Illinois Trust Termination by Unanimous ConsentStep One: In order to terminate a trust, the first step is to obtain the consent of the trustee and all of the beneficiaries.Step Two: Create a form called a Revocation of Trust.More items...?
In general, though, there are four common pathways to terminating an ILIT:1) Trustee's Power To Terminate.2) Trustee's Power To Terminate A Small Trust.3) Consent Termination By Grantor And Beneficiaries.4) Beneficiary-Directed Court Termination.
Thus, the trustee cannot terminate the GRAT before expiration of the term of the grantor's qualified interest by distributing to the grantor and the remainder beneficiaries the actuarial value of their term and remainder interests, respectively.
Dissolving the Trust Normally, you are not allowed to dissolve an irrevocable trust once it has been established. However, since the trust must make ongoing premium payments to keep the ILIT in effect, you could effectively cancel an ILIT by ceasing making payments for the premiums.
In other words, if the grantor (or a non-adverse party) has the power to revoke any part of a trust and reclaim the trust assets, then the grantor will be taxed on the trust income.
So in short, an irrevocable trust isn't entirely irrevocable. It can be changed and as long as you have the right trustee, it can be done without risking losing your estate tax benefits.