Q.  What is a “Super Trust”?

A.  A Super Trust is most commonly referred to as an Irrevocable Life Insurance Trust.  It is primarily used in larger estates over the exempt amount (see Tax Exempt Table, page **) to reduce the federal estate tax.  It is created by the grantor, who names an independent trustee (not the creator) who receives amounts usually up to $11,000.00 per beneficiary for the purchase of life insurance.

            The advantage of this arrangement is that the creator can reduce the overall size of his estate, and the proceeds of the life insurance are not included in the estate of the creator of the trust.  This type of planning can realize substantial savings in the estate tax.  When you consider that the tax rate jumps to 55% very quickly on estates over the exempt amount, the need for estate planning becomes quite obvious.

            The planning of a Super Trust should be accomplished by a competent estate planning attorney because of the many possible problems and the huge tax penalties for mistakes.  For example, IRS law reads that the $11,000.00 gift rules do not apply to gifts of “future interest.”  To solve that problem, the Super Trust gives the beneficiaries a stated period of time to exercise withdrawal rights, which gives them a “present interest” in the trust, thus qualifying it for the $11,000.00 gift rules.  A master notice letter to beneficiaries should be prepared, giving the beneficiaries proper notice of the contribution to the trust and their respective rights.

            The Super Trust is rarely used in small estates, but is almost always created for large estates.  Estates under the exempt amount commonly use a revocable living trust or an A/B trust in order to avoid probate, have a guardianship plan, and make distribution of the assets quick, easy and private for their heirs.