Turbocharge Your ILITs

Categories: Wealth Transfer Strategies

The irrevocable life insurance trust (ILIT) is one of the most common planning techniques used to provide income and estate tax-free liquid assets for beneficiaries.  Generally, the grantor(s) will make annual gifts to the ILIT intended to cover the premiums on the life insurance policy owned within the trust.  Using Crummey provisions included in the trust document, the grantor(s) will apply their annual gift exclusion to the premium gifts to the ILIT.  This is fine as long as the premiums fall within the annual exclusion amount and the grantor doesn’t want to use the exclusion for other gifts during the year.

Problems can arise when the premium cost is greater than the available annual gift exclusion or in other scenarios where the grantor has issues with making the premium payment.  Try this unique solution for new and existing ILITs:


  1. Grantor buys or already owns Jagen™ fund holdings with net asset value (NAV) of $1 million and fair market value (FMV) of $700,0001 and a three year fund term.
  2. Grantor sells his/her Jagen™ fund holdings to the ILIT for full FMV of $700,000 in exchange for an interest-only promissory note.
  3. ILIT repays note principal of $700,000¹ out of full NAV proceeds ($1 million²) when the Jagen™ fund term expires in thirty-six months.
  4. ILIT then has $300,000 in cash to use for annual premium payments, to purchase a paid up policy or other uses.  Cash could also be used to repay a premium finance loan if the ILIT had incurred such debt previously.
  5. Future ILIT premiums and other expenses have now been “pre-funded” with $300,000 cash with zero gift tax liability or Crummey notice requirements.

This is just one of multiple applications for Jagen™ funds that can greatly enhance clients’ existing or new planning strategies.  Call or email today for more information and to discuss specific client case situations.

¹Discount for illustration purposes only.  Actual discount, if applicable, will vary.

²Assumes no change up or down in NAV during the stated holding period.  Actual results will vary.

© 2010  Jagen™ Investments, LLC

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