On November 21, 2017, ITM TwentyFirst received a South Dakota charter for an affiliated trust company, the Life Insurance Trust Company, the first trust company focused solely on life insurance trusts.  On December 22, 2017 President Trump signed into law The Tax Cuts and Jobs Act with sweeping tax changes that included a doubling of the federal estate tax exemption amount to just over $11 million, lowering the number of estates affected annually by the federal estate tax from 5,000 to 1,700, less than 0.1 percent of all deaths (1).  Yet, we are extremely bullish about the prospects for our affiliated company.

The federal estate tax is fluid. It has been repealed four times only to reappear again.  If less than 100,000 voters had changed their votes in the last presidential election we could be looking at a $3.5 million exemption and a top estate tax rate of 65% (2).  News reports focused on the $1.7 trillion the tax bill will add to the federal deficit (3), but this is on top of the current $20 trillion dollars in debt ($170,000 per taxpayer) (4), and the additional $10 trillion that was already projected to be added to the debt over the next 10 years (5).

That much debt should raise interest costs. Interestingly, since 2008, while $8.4 trillion was added to the federal government debt, federal net interest costs incurred were near the lowest levels in 50 years (6).  That is going to change as the historically low interest rates rise.  It is projected that net interest costs will more than double in real terms and as a share of the economy over the next decade (7).  More government revenue will be needed, and if the political climate changes, the estate tax will be a target.  “We think there will be times when Congress is looking for new revenue sources, and this is a fairly easy one,” said one executive with a group that is a proponent of the estate tax (8).

But even if the political climate and federal estate tax situation does not deviate from the current, post Tax Cuts and Jobs Act climate, our affiliated trust company is still primed for success.

Life insurance, is at best, a cumbersome asset.  And ramping up internal resources – human and capital – to successfully manage an asset fraught with liability is a tougher business decision for financial institutions to make these days.  Some are looking for an opportunity to offload their life insurance trusts to a firm that will be a partner, not a competitor, and that is the business model that has been created at the Life Insurance Trust Company.  Managing life insurance trusts well without interest in the other assets a client may have, creates the perfect win/win scenario.  In some situations, a firm may wish to offload only those trusts with grantors that have no other relationship with the institution, so called orphan or stand-alone accounts.  The new company stands ready to accept only those trusts, leaving a more profitable ILIT business line.  For each situation, a tailored approach can be created.

Compliance managers at accounting and law firms whose members and partners have accepted the TOLI trustee role for clients are beginning to understand that the unchecked liability this creates is simply unacceptable with an asset such as life insurance.  A specialized trust company with robust individual and portfolio reporting provides a built-in tracking mechanism found nowhere else.

Financial and life insurance advisors looking for a home for life insurance trusts created over the years will find the advantages of this new trust company hard to pass up.  The life insurance experts servicing the Life Insurance Trust Company are advisor-friendly, and though the trust company bears a fiduciary duty solely to the beneficiary, its professionals understand that the success of the policy comes partly from working with the advisors in the field.  Another plus – advisors are provided with one of the most complete annual policy reviews available anywhere, alleviating them of this back-office expense, a welcome benefit for those advisors looking to downsize or reduce office expenses.

Life insurance trusts have many benefits besides tax advantages, including protection from creditors and the ability to control the passing of wealth to beneficiaries, important in those situations where spendthrift, mental illness or addiction issues may play a role.  But in the last few years, we have seen that the management of this asset may best be handled by an organization with specialized resources and talents.

For those who would like to learn more about the Life Insurance Trust Company, a special one hour webinar is planned for Tuesday, January 30th, 2018 at 2PM eastern.  To register, click here.

For more information about this new trust company, contact Leon Wessels, Director of Business Development, at 605.574.1703, or lwessels@lifeinsurancetrustco.com

 

 

  1. Howard Glickman, Tax Policy Center, December 6, 2017, http://www.taxpolicycenter.org/taxvox/only-1700-estates-would-owe-estate-tax-2018-under-tcja
  2. While President Trump won 290 electoral college votes, 70 electoral college votes were won by less than 1.5% of the vote, including; Wisconsin (10), Pennsylvania (2), Florida (29) and Minnesota (10). Michigan (16) and Vermont (3) were won by less than .4% of the vote.  Clinton proposed a $3.5 million estate tax exemption and a top tax rate of 65%, Hillary Clinton Proposes 65% Top Rate for Estate Tax, Wall Street Journal, Richard Rubin, September 22, 2016
  3. Congressional Budget Office, Estimated Deficits and Debt Under the Chairman’s Amendment in the Nature of a substitute to H.R. 1, the Tax Cuts and Jobs Act, https://www.cbo.gov/publication/53297
  4. org, amount as of 1/24/2018
  5. CBO’s January 2017 Budget and Economic Outlook, Committee for a Responsible Federal Budget, January 24, 2017
  6. Policy Basics: Deficits, Debt, and Interest, Center on Budget and Policy Priorities, August 29, 2017, https://www.cbpp.org/research/federal-budget/policy-basics-deficits-debt-and-interest
  7. Congressional Budget Office, The 2016 Long-Term Budget Outlook, July 12, 2016
  8. Death Tax Repeal In 2017?, Ashley Ebeling, Forbes, June 6, 2013.

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