Do you have clients whose estates face a liquidity crisis because they’re loaded with stock in a family company or other illiquid assets? A Graegin loan may be just the technique you need to prevent unwanted liquidation of estate assets to pay estate taxes and other expenses. If you add life insurance, then the Graegin loan’s positive impact on estate liquidity can be levered up significantly.

An ILIT should never pay the estate’s expenses directly. Do that and you risk pulling the ILIT’s assets back into the estate, totally eliminating its primary purpose. Also, although the Graegin loan is a permissible estate planning device, the IRS would be happy to challenge the loan as being not bona fide or necessary in the administration of the estate. Both the ILIT and the terms of the loan must be drafted carefully to avoid undue IRS scrutiny.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of estate liquidity solutions in Advisor’s Journal, see Practical Succession Planning for the Family-Owned Business (CC 08-22) and Avoid the FLP Trap When Paying the Estate Tax (CC 11-170).

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