After the Trust has been executed by the Grantor and Trustee, the Trustee should establish a tax ID number (known as an EIN number) with the I.R.S. I would do that on the website of the I.R.S., which is www.irs.gov. You can obtain it the same day that you request it on the website.
Once you have the tax ID number, you are able to open a checking account in the name of the Trust. That would be the Trustee’s role, since the Trustee is the one who will have authority to deposit and withdraw money from the account. I usually wait until the Trustee receives the first premium payment from the Grantor before opening the checking account. The initial premium payment to establish the life insurance policy will be paid by the Grantor to the Trust. The check will be deposited into the Trust checking account. The Trustee then is required to give notice to all the beneficiaries that they have the right to withdraw their equal share of the payment from the Trust. Often the beneficiaries have a 30-day period in which to withdraw the beneficiary’s share.
The right of withdrawal is necessary in order for the payment into the Trust to be nontaxable to the Grantor. By allowing the withdraw right, the Grantor is able to use the Grantor’s annual exemption from gift taxes (currently $14,000 on a gift to any person per year), to exclude the payment from taxation. The Grantor can exclude $14,000 from taxation for each beneficiary of the Trust who has withdrawal rights. Thus, if there are ten beneficiaries with withdrawal rights, then the Grantor can put $140,000 in the Trust every year without paying gift taxes.
After the withdraw period has elapsed from the time the beneficiaries received notice of their withdraw right, the Trustee is then free to write a check from the Trust checking account to pay for the premium on the life insurance policy. This process will be repeated every year of the Grantor’s life as long as the insurance policy is in effect. Each payment by the Grantor must come into the Trust checking account. Notice must then be given to the beneficiaries, and after the withdrawal period the Trustee can pay the premium from the Trust checking account.
Here is the summary of the required steps:
• Execute the Trust
• Trustee establishes EIN number for Trust
• Trustee receives check from Grantor and opens up the Trust checking account
• Trustee sends notice of withdraw right to each beneficiary.
• Beneficiary has 30 days to notify Trustee of exercising the withdrawal right.
• After 30 days have elapsed the Trustee can use the remaining cash in the checking account to pay the premium on the life insurance policy.
