Who could have ever imagined that Congress would allow the estate tax to actually get repealed? As my attorney friend put it, the estate tax will get repealed when “Pigs Fly.” Well, don’t look now, but pigs started taking flight just after New Year’s.

We don’t know when Congress will re-address this issue, but as soon as one wealthy individual passes away and CNN reports it, you can bet this tax will become more important. Until then, the estate tax is repealed (until 2011) and the litigation about a retroactive tax is already becoming a common discussion (albeit in small circles).

One change that is taking place is the termination of Irrevocable Life Insurance Trusts. Many of these trusts were written when the exemption was $600,000 and the purpose was to (1) remove life insurance proceeds from your taxable estate; (2) provide liquidity for future tax liabilities; (3) provide liquidity to purchase assets from the estate or (4) to simply create an asset to pass on. There are numerous reasons that these trusts were created. However, many people have decided that ILIT’s (and subsequently, the policies) no longer address the intended purpose and have begun the process of taking cash out of the policies.

Don’t jump too soon! Keep in mind that the insurance you once purchased was done for a reason and the trust you may have created still has the value of removing the insurance from your estate and providing liquidity. It continues to be a tool that should be considered. If you are serving as the trustee of an irrevocable life insurance trust, this is the time to really protect yourself. Recent cases have been published in which a trustee was sued when the owner of the policy died and the policy had previously been converted to a “paid-up” policy, with significantly less death benefits. If the insured had continued to live, as anticipated, the savings would have been significant, but since he had the audacity to die at the wrong time, the trustee found himself to be the target of beneficiaries who wanted the value of the previous insurance policy.

Bill Kerst President, Community First Trust Company. He has been conducting educational seminars on IRAs, asset management, and trust management for over 15 years. He has served as the moderator for the Income Taxation of Estates and Trusts course offered by the Arkansas Society of CPA’s and provided many seminars to civic and church groups in the community. For more information, call 501-520-3660.

www.communityfirsttrust.com

Some keys to consider when addressing your insurance needs, whether you are buying, selling or replacing:

1. Focus on the desired benefit.

2. Obtain multiple quotes. Do not rely simply on the word or recommendation of anyone with a vested interest in a transaction.

3. Make sure to document your files and provide a true process for any transaction that occurs.

4. Memorialize all outcomes. When appropriate, make certain all interested parties are aware of your changes.

As we continue to migrate through unchartered territory in the area of estate tax planning, please keep in mind that your needs should only be addressed by a competent professional. Planning isn’t always driven by the need to reduce taxes, in fact, it is more frequently driven by the needs and desires to protect your family from events that can or cannot be anticipated.