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Liquidating assets may be neither efficient nor desirable depending on market conditions, tax implications or potential for future capital appreciation.
Premium financing may also provide certain tax advantages, which should be discussed with your tax advisor.
Selling assets to free up cash may also eliminate the opportunity to potentially generate additional returns from the assets that were sold, or, in the case of a business, may have an impact on its balance sheet.
As an alternative approach to funding a policy, you may want to consider the potential advantages of financing life insurance premiums, which may provide a policy owner more financial flexibility.
Tax issues when funding insurance through a trust When life insurance policies are owned inside an irrevocable life insurance trust (ILIT), a number of important estate and gift tax issues must be considered.An important factor to consider in determining the source of funding to pay premiums is gift taxes.If existing assets are directed to the trust (either as an outright gift or as a private loan) to pay for life insurance premiums, the sum of the gifts or the forgiveness of any loan interest or principal balance may be sufficient to trigger gift-tax consequences and count against the unified gift and federal estate tax lifetime exemption.Once the appropriate coverage is identified, the plan to fund the premiums will be determined.Most insurance companies require a review of any premium financing structure as part of an enhanced underwriting process before issuing the policy.— A decision can be made if individual assets will be used to pay the premiums or if leveraging existing assets through life insurance-premium financing is a better alternative.
Financing life insurance may allow you to amplify the power of these exemptions. The fundamentals of financing life insurance premiums for a trust Obtaining life insurance-premium financing is a customized process designed to address needs that are unique to each individual.