It is apparent that many individuals assume the term "irrevocable" means that you lose control and therefore access to cash values. This is incorrect! Irrevocable simply means that you cannot change the words. However, if the words you cannot change give you or someone you trust all the control you want over the funds, why change the words?

This is the essence of the Amendable Irrevocable Super TrustÓ .

In our model we have a $17 million estate with $1,278,871 in the company pension plan. We advised the clients to start taking out $140,000 per year at age 59 _ in order to avoid the taxes upon death. The client then decided to use the new income to give to an Amendable Irrevocable Super TrustÓ . The trust will develop a cash value in 10 years of about $1,400,000.

The typical concerns of the client and financial advisors are these:

The answer is simply that the non-insured spouse is the income beneficiary subject to the same "ascertainable standard" test the IRS makes us use on the B trust of a QTIP. That is the wife, for example, may take all of the income and as much principal as reasonably needed to support her for health, education support and maintenance. Since the trustees are generally the children or other family members, we generally have a trustee who is "friendly" when it comes to making these distributions.

The proceeds in this example will not be taxable in the husband’s estate (assuming he is the insured) because he has no incidents of ownership under IRC section 2042 because he is not a beneficiary or trustee. The fact that his wife is the income beneficiary is irrelevant to any code section that would make insurance taxable n his estate, since she is not the insured.

It is important in these cases to make sure that there is a post-marital agreement to insure that the wife, PRIOR TO THE HUSBAND’S TRANSFER OF THE POLICY, gives any interest she has in the policy to the husband. Otherwise, she would be making a gift with a retained life estate under IRC section 2036 (a). It is also important to make sure this agreement deals with future premiums because many times the premiums would be community absent this agreement.

If the insured husband is the only one who is the grantor and premium payor (assuming he gave the policy to the trustees 3 years prior to his death), there is clearly no code section applicable that can bring policy proceeds back into his estate. It is also clear the proceeds will not be taxable in the spouse’s estate due to the "ascertainable standard" above.

Circumstances do change. Sometimes we need to change the trust to accommodate vastly changed family situations. Maybe a previously healthy family member is now on drugs, divorced, or has other problems requiring a change in the plan.

The amendable feature solves this problem. There are "special trustees" who are given the power that at least two of the trustees must sign giving them the right to give, sell, or donate any policy in the trust to any person or institution in the world. These two trustees (usually the adult children) simply direct the insurance carrier to change the policy ownership from the trust to another similar trust with different terms. Or the policy may be given directly back to the insured if that is desirable. In effect, the old trust was not really "amended," but the assets were simply removed, leaving a dry, empty shell.

This power cannot be given to the insured or the spouse in our judgment, but may be given to any other person.

In our case study with the $140,000 annual premiums, we had a married couple with two children and five grandchildren. Since this was a joint life policy and therefore both spouses were grantors, we were able to put the entire premium in gift tax free under the CRISTOFANI case. You may recall that this case decided that we can use

CRUMMEY withdrawal powers to all natural decedents of the original beneficiaries, since they had a "vested contingent remainder interest" in the trust.

If we have enough children, grandchildren and great grandchildren, and in some cases brothers, sisters, nieces, and nephews, we can put into the trust $10,000 per year for each of those individuals.

Another method to consider would be the use of the Private Split Dollar. If you did not receive a copy, please call Diane Hermann to request a copy.

There are two possible answers here. The first is that the secondary beneficiaries of the trust, if the wife dies first, are the children. If the surviving father in this case wanted to, he could go to his children and ask them to take out of the trust $10,000 per year and give it to him. If the children refuse or the father does not want to ask them, the second answer would be to simply call any of the "special trustees. He would ask them to terminate the trust in whole or part in favor of him by giving him back some or all of the policies containing the cash values. Of course this would put the death benefit back into his estate, but we presume that he would not be asking for money back unless he had fallen on hard times and, therefore, the taxable estate would not be a consideration.

Properly and carefully done, we can keep the insurance out of the estate and still keep a relatively high level of control through "friendly" trustees.