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  • Writer's pictureRandall Fisher

Estate Taxmageddon, Part III: The Acme Moment and the Irrevocable Life Insurance Trust

It’s called the Acme Moment.

It’s that futile second when the cool and confident Wile E. Coyote opens his eyes to find he has run out into midair, miles from the edge of the cliff. He looks down meekly, holds up a farewell sign, and resigns himself to once again plummeting to the depths of the Grand Canyon.

America, circa January 2013.

Meanwhile, an unconcerned Road Runner peers down from the edge, pronounces a solemn eulogy of “Meep! Meep!” and carries on with whatever constitutes “business as usual” for a bird whose land speed can break the sound barrier.

Problem solving, by Acme. Oh, to be a product safety lawyer in the Looney Tunes world.

Admittedly, few cartoons encourage the development of healthy problem-solving skills , but then few governments spend money as though it were printed in $500 bills stamped with the face of the Monopoly man. At some point, the U.S. government will find out that it simply cannot pass ‘Go’ and collect $1.2 trillion of debt as it has annually since 2008.

Now, I’m not suggesting you’ll find the inspiration to balance the U.S. budget deficit by excavating your Chuck Jones cassette tapes from basement storage.

(Would that it were that easy, Ben Bernanke.)

It’s just that if our economy is going to be run like a children’s board game, then I have no compunction about comparing our government to a children’s cartoon:

Congress is hurtling toward the edge of the fiscal cliff like a Coyote wearing rocket-skates. If they can’t find the emergency brake, then we’ll all wind up in a collective American Acme Moment.

I myself am not comfortable being a beta-tester for Acme Corporation, the company that brought you such responsible innovations as the Do-It-Yourself Tornado Kit and the Jet Propelled Pogo Stick. No, I’d rather be the Road Runner – the bird with the good sense to stop at the edge of the fiscal cliff and sidestep the manic Congress Coyote that threatens to propel us into economic oblivion on what seems to be a yearly basis.

This post marks the third installment of our series on ways to dodge that hurtling Coyote. Estate planning options like the Spousal Access Trust are strong in 2012 but the distance to the edge of the cliff is rapidly shrinking. Our Cartoon Congress seems more interested in actively procrastinating on the fiscal problem than in actually solving it, so it’s up to you to do what you can while you can.

Here’s another way to plan in the three months left before the gift, estate, and generation-skipping tax exemptions roll back from $5.12 million to just $1.12 million: making gifts to an Irrevocable Life Insurance Trust.

Life insurance can be used to provide income for a family, pay estate taxes, and as an income tax shelter. If structured properly so that the trust maker does not have any incidents of ownership, none of the assets (policy proceeds) of an irrevocable life insurance trust will be included in the trust maker’s taxable estate, making them free of both income and estate taxes.

The general concept is that the irrevocable life insurance trust is the owner and beneficiary of the policy on the trust maker’s life. The trust maker makes gifts to the trust to cover the insurance premiums, and the trustee makes the premium payments. At the trust maker’s death, the proceeds are paid to the trustee who can use the funds to purchase assets from the estate and provide liquidity for estate taxes and other expenses.

The trustee can make discretionary distributions of income and principal during the lifetime of the trust’s beneficiaries, which can include the trust maker’s spouse, children and future generations. Note that assets that remain in the trust are not included in the beneficiaries’ estates and are protected from creditors.

Using the $5 million gift and generation-skipping tax exemption amounts can provide substantial amounts of life insurance (think single or 2-pay premium) and benefit the grantor’s children without future estate, gift and/or generation-skipping tax.

Part of what makes the irrevocable life insurance trust so appealing this year is that income tax rates are set to increase in 2013 from the current 35% rate to 39.6% or even to 43.4% if you’re subject to the 3.8% surcharge. Couple that with the $5.12 million gift exemption and it’s evident that creating an irrevocable life insurance trust sooner rather than later is in your best interest.

It will take much more than a mail-order panacea from a dubious (not to mention fictitious) cartoon corporation to solve the fiscal nightmare our country faces. The irrevocable life insurance trust is obviously no solution to our collective economic and political woes, but it’s a strong centerpiece of an individual estate plan.

Don’t look to Congress to solve all your problems. Look in the mirror instead.

Just make sure you look in the next three months because in real life the Coyote doesn’t survive the Acme Moment.

Good luck and good hunting.

This is the third post in a series discussing the advantages of estate planning in 2012. Click to learn more in Part IPart II, and Part IV.


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If you’re interested in discussing business law, asset protection, or how to perfectly smoke a turkey, find out how to get in touch with us at: You can also contact us at, on Twitter @thefisherlawoffice, or at If you’re here just because sometimes we have kittens on the blog, get your fix at the Arts and Cats Movement. Click image(s) for source. A portion of this post was borrowed from Vol. 6.3 of The Wealth Counselor, a monthly newsletter for wealth planning professionals. A special thanks is due to Matt McClintock, J.D., and Jonathan Mintz, J.D., of WealthCounsel for use of that information.

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