The President's FY2013 Green Book, or fiscal proposals, calls for ending ILITs. No longer would the assets be excluded from the decedent's estate nor would distributions during the grantor's life not be subject to the gift tax. The proposal does not makes this change retroactive, but rather applies to trusts created on or after the date of enactment.
My legal practice focuses on issues of illness, death and taxes for the middle class. With a federal tax exemption level of $5 million (currently), nearly none of my clients are concerned with the tax of ILITs. However, some touch on the fringes of this number, especially those building businesses. As changes to the federal exemption level develop, and a possible extinction of the ILIT, it is an issue I will monitor and post as needed.
Thanks for reading, and remember a blog post is not your lawyer. Please consult with an attorney for advice on the specifics of your situation. And a special thanks to my law clerk, Sarah Wood, for her research on this topic.