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Irrevocable Life Insurance Trusts (ILITs) are planning tools used to keep life insurance proceeds outside of the taxable estate.

For example, if a married couple has an estate of 6 million, they can pass 4 million to the next generation with no

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

tax if they set up the proper trust arrangement to take advantage of the maximum lifetime unified credits. That leaves 2 million still subject to tax under the current law.

The logical thing to do is to purchase a survivorship life insurance pol

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

icy for the projected tax. However, a policy purchased in the manner most people are familiar with, the problem is not solved; it is compounded.

If the couple has any "incidences of ownership" in the policy, it will be included in the estate. Th

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

purchase of a one million dollar policy increases the estate to 7 million. Four million passes tax-free, but now the taxable estate is 3 million. This increases the tax by some $225,000.

Enter the Irrevocable Life Insurance Trust
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
g>

Attorneys draft Irrevocable Life Insurance Trusts. The trust will apply for its own Federal Tax ID number. The trust will then apply for the survivorship life insurance policy. It will be the applicant, owner and beneficiary of the policy. Ty
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro
pical wording is "The John and Mary Smith Irrevocable Life Insurance Trust dated April 5, 2007, JPMorgan Chase Bank, trustee."

In this example, since neither John nor Mary has any "incidence of ownership" in the policy, it will not be part of t
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
eir taxable estate.

The Owner and Beneficiary

As opposed to using an ILIT, I have worked with a few cases where the only child or children are the owner and beneficiary. This may work. However, each year the parents gift the mo
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
ney to pay the premium, there is no assurance that the money will be used to pay the premium. Furthermore, the children, as owners, have access to the cash values. An ILIT has much more assurance.

I have seen the trustee be a child, the couple's
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
attorney, accountant or a long-time family friend. All of these will work, but an un-biased third party, such as a bank, is much better. If an individual is the trustee, name a bank as the successor trustee. Banks don't die.

The Crummey
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
Letter

Typically, the life insurance premiums are paid by the parents in the form of annual gifts to the Irrevocable Life Insurance Trust. Currently (2007) a person can give up to $12,000 each year to as many people as they want without
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
paying gift tax or having the amount subtracted from their lifetime exclusion. However, these gifts must be "present interest" gifts, which mean the recipient must have immediate rights to the gift.

Gifts to an ILIT, for paying premiums on a li
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a
fe insurance policy owned by the ILIT, are not "present interest" gifts. A "Crummey" letter qualifies the gift as a "present interest" gift. The letter is not crummy or poorly written; the letter takes its name from a court case initiated in 1968
dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod
by Clifford Crummey, who was trying to do this very same thing: make annual gifts present interest gifts. Ultimately, the outcome of the case required the use of a letter, now known as the "Crummey" letter.

A letter is sent every year to each of
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
the beneficiaries of the ILIT. It simply states that a gift has been made to the ILIT and they can withdraw it if they want within a certain timeframe, usually 30 or 60 days. If they don't exercise this right, the gift becomes a present interest
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
gift.

Obviously, there is an "understanding" between the parents and children to ignore these letters, as it is a part of the overall estate plan. The annual gifts and the ensuing yearly Crummey letters do not have to go to children with a lega
t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
capacity, such as age 18. I have seen letters written to 4-month-old babies. In this case, even though the baby was not able to read the letter or understand the estate planning rationale behind it, it did not exercise its right to the gift. Phe
ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust
w, another legal bullet dodged.

As you can see, it is very important to arrange for the annual drafting of these Crummey letters. Some banks' trust departments used to provide this service if they were the trustee of the trust. This was just a c
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
ourtesy as they never would see or manage any of the life insurance proceeds.

The best bet is to have your attorney do the letters. I have one client whose law firm (under a written set of instructions) has the premium notice from the life insur
.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
nce company sent to their firm, prepare and send the Crummey letters and then pay the premium. All the client has to do is open a letter each year from the law firm indicating a premium is due and send them a check. Other than that, they don't ha
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip
ve to lift a finger. A nice service.

If you have an estate that will be subject to estate taxes and your advisors suggest a life insurance policy to pay the tax at a discount, make sure you evaluate the use of an Irrevocable Life Insurance Trust

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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Just Answers - ILIT - The Irrevocable Life Insurance Trust

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