141 Private Financing: How It Works LoansTRUSTPremiumsClient(s)LifeInsurancePolicyIns.Co.Gifts (= interest)Overview of a private financing arrangement:--The client/insured lends money to the ILIT to pay some or all of the policy’s premiums.-- The client/insured typically gives money to the ILIT each year to help pay the loan interest.--To avoid estate inclusion for the client/insured, the loans are not secured by the policy.--The loan can be repaid before or after the insured’s death.Interest
144 Bank Financing: How It Works LenderInterestLoansTRUSTPremiumsLifeInsurancePolicyIns.Co.Overview of a bank premium financing arrangement:--The bank lends annually to the ILIT.--The trust uses the borrowed funds to pay premiums on a policy insuring the life of the client/ grantor of the ILIT.--The policy is assigned to the bank as collateral. The bank often requires additional collateral and/or a guarantee from the client/grantor.--The client/grantor typically gives money to the ILIT each year to pay the loan interest.--The ILIT pays the interest to the bank. The payment is not deductible by the ILIT.--The ILIT repays the bank according to the terms of the loan.Gifts (= interest)Client(s)
147 Non-Equity Split Dollar: How It Works Prem. PaymentsTRUSTPremiumsClient(s)LifeInsurancePolicyIns.Co.Gifts (= term cost)Overview of a private split dollar arrangement (aka “nonequity split dollar”):--Client/insured pays premiums for ILIT-owned policy and is entitled to an amount equal to the policy’s cash value.-- ILIT is entitled to some, but not necessarily all, of death benefit paid by the policy.--Client/insured gives the ILIT an amount equal to the cost of the death benefit it controls. ILIT pays this amount to client/insured. This is based on term rates provided by the government (Table 2001) or the insurer.--To avoid estate inclusion for the client/insured, the arrangement is unsecured.--When the arrangement is terminated, the ILIT is buying the client’s interest in the policy. The purchase price is its cash value.Term cost
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