Although an in-depth analysis of the QPIP(R) strategy is beyond the scope of this article, here is a brief overview of the strategy.
With a QPIP, a retirement account, the participant, and an irrevocable trust join together to form a limited liability company (LLC) in a manner that satisfies the prohibited transaction rules of ERISA and the Internal Revenue Code. After a period of time, the LLC manager could, at his or her discretion, invest in an insurance policy that insures either the account owners life or the lives of the account owner and his or her spouse.
Once the LLC is established, the participant makes a nominal contribution to the LLC in exchange for a membership interest. This is to make sure the LLC has an insurable interest on the participant’s life, while the irrevocable trust contributes an amount which is no less than the cost of the insurance protection provided by the insurance contract anticipated to be acquired by the LLC. The balance of the contributions to the LLC comes from the retirement account.
The LLCs manager invests the contributions and, after a period of time, can use the earnings generated by its investment portfolio (and principal, if need be) to purchase the insurance contract and name the LLC as the beneficiary. After the insurance policy has been acquired, the participant could gift the LLC interest to the irrevocable trust.
For a more detailed description of the QPIP, visit www.estatecounselors.com.
–Andrew Willms and Jason Handal
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.