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The reconciliation package now being considered by Congress includes dramatic changes to grantor trusts which are of significant concern to many NAIFA members and their clients, especially proposed changes to Irrevocable Life Insurance Trusts and the weak, ineffective “grandfather” provisions included in the reconciliation proposal. ILITs have been used for decades to help families of all sizes – not just the rich – address the expenses, income taxes, estate taxes, and gift taxes due at death. Life insurance policies inside these trusts provide the necessary liquidity to family heirs without the death proceeds themselves being included in the deceased’s taxable estate.

Reconciliation rule changes to grantor trusts would undo that planning for many existing trusts. Making the rule retroactive in many instances leaves little recourse for correction – forcing families to liquidate closely held businesses, family farms, and other assets to cover the cost due at death.

NAIFA is asking Congress to eliminate changes to the treatment of grantor trusts in the reconciliation bill, among other changes to the legislation.

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