Commonwealth Trust Company

An Independent Delaware Trust Company Established in 1931

INSURANCE TRUSTS

Benefits of Delaware Trust Law

How to Take Advantage of Delaware Trust Laws

Corporate Versus Individual Trustees

The Typical Trust Structure.  Delaware law permits the appointment of investment advisors (the advisor may even be the settlor of the trust), trust protectors and distribution advisors, none of whom are required to be residents of Delaware, so long as a Delaware trust company is serving as trustee. Commonwealth Trust Company, as your independent trustee, requires only that you utilize an independent investment advisor.

About Insurance Trusts

Life insurance proceeds payable to anyone other than an insured’s spouse are subject to Federal

estate tax if the insured holds certain ownership rights (incidents of ownership) in the policy at the time of death.

Incidents of ownership include:

• The right to change beneficiaries,
• The right to borrow against the policy, or
• The right to pledge the policy as collateral.

An effective method in avoiding Federal estate tax is the creation of an Irrevocable Life Insurance Trust where the insured holds no incidents of ownership.  Upon acquisition of a new policy on the settlor’s life, the trustee holds all incidents of ownership in the policy and the life insurance is immediately excluded from the settlor’s estate.

Upon transfer of the ownership of an existing policy to a trust, all incidents of ownership are assigned to the trust. After placement of an existing insurance policy into the trust, three years must pass before the policy is excluded from the settlor’s taxable estate.

Aside from potential gift considerations, the Irrevocable Life Insurance Trust remains an excellent tool for reducing or avoiding estate tax in both spouses’ estates while providing future generations with tax-free proceeds.

By implementing an Irrevocable Life Insurance Trust, insurance proceeds may be removed from a taxable estate. These proceeds may provide liquidity for estate expenses, estate tax payments or balancing bequests to beneficiaries when non-liquid assets such as closely-held business or real estate held in an LLC dominate estate holdings.

Financial Institution Fees Versus Commonwealth Trust Fees

Many financial institutions will not accept Irrevocable Life Insurance Trusts or, if they do, excessive fees are charged for the performance of Trust Administration during the life of the insured. The excessive fees are due to the non-liquid nature of the trust. During the life of the insured the trust owns the life insurance policy yet owns virtually no liquid assets for investments.

Commonwealth Trust Company Offers Professional, Economical Services.

In comparison, Commonwealth Trust Company provides the insured with professional, economical trust services. Since our sole function as trustee is trust administration, that is, management of your trust, we are able to offer streamlined, economical services.

Effectively Assigning Rights Of Ownership

To effectively assign rights of ownership, the insured cannot act as trustee for their Irrevocable Life Insurance Trust.  Ideally, an Independent trustee, other than one of the trust beneficiaries, is chosen.  Commonwealth Trust Company is an independent trust company acting as an independent trustee to your trust.  In that role, we are able to offer professional, economical trust services.

When Considering a Corporate Trustee, Consider

Commonwealth Trust Company

An Independent Delaware Trust Company Established in 1931

The Delaware Advantage

·         Delaware law allows the formation of asset protection trusts which shield assets from certain classes of creditors and allow the settlor of the trust to remain a potential beneficiary.

·         There is no Delaware income tax on ordinary income or capital gains accumulated or distributed for non-resident beneficiaries, and if a Delaware trust company is named as administrative trustee, income tax in the beneficiaries’ home state may also be avoided.

·         There are no Delaware intangible personal property taxes, and no Delaware death taxes, except in limited circumstances.

·         Delaware allows the creation of dynasty trusts which can last indefinitely without imposition of additional estate or gift taxes.

·         Trust accounting rules are streamlined and may be eliminated if the settlor so desires.

·         Delaware law recognizes spendthrift trusts and provides virtually complete protection from claims of creditors for a trust beneficiary, especially if the trustee is a Delaware bank or trust company.

·         Delaware does not require trust agreements to be filed or recorded, and if they are subject to litigation, the Chancery Court has been willing to place the court record under seal.

·         Delaware permits the settlor of a trust to limit the number of beneficiaries who are to receive notice of the trust, both during the settlor’s lifetime and after his or her death.

·         Delaware permits the settlor of the trust to establish his or her own investment policy in the trust instrument, and permits the use of investment advisors of their own choice to advise the trustee without breaching the trustee’s fiduciary responsibility.

·         The Chancery Court has a history of seeking to determine the settlor’s wishes and the settlor’s intention, as demonstrated in the trust instrument.

About Commonwealth Trust Company

Commonwealth Trust Company is a non-depository trust company that serves as Corporate Trustee for various types of Delaware situs trusts including:

• The Delaware Dynasty Trust

• The Delaware Asset Protection Trust
• Life Insurance Trusts
• GRATS
• Charitable Trusts

What makes our service unique is that we only perform trust administration, offering you the resource needed to take advantage of Delaware trust law while working with your current trusted advisors and never replacing them.

Since we only perform administrative services and do not provide investment services, our structure permits you to use your existing investment advisor. Delaware law also permits you to use a distribution advisor and a trust protector of your choosing.

We are professional trust administrators with a well trained, responsive staff. Our goal is to provide our clients with the best service experience.

With our staff of highly skilled professionals, Commonwealth Trust Company offers you and your client experience and integrity. We have been engaged in trust services for over 70 years gaining extensive expertise in business and fiduciary matters. You will benefit from our expertise and will find we respond quickly and efficiently to all trust matters.

*This information is not meant to convey legal or tax advice.

You should contact the appropriate advisor on these matters.