RMD from PS plan with life insurance only major asset

[Guest SteveD]

Here is my scenario:

H/W roll IRA accounts to Profit Sharing Plan of LLC as one component of huge estate planning technique. 95% of the assets were then used (or will be used) to purchase life insurance. LLC pays members guaranteed payments and LLC contributes to plan on ongoing basis (these amounts are minimal - $3,600 each in contributions per year).

The question is: is there any guidance as to how to determine and payout required minimum distributions for both H/W on an annual basis when no liquid assets exist? I believe this to be a major problem in the attorneys grand plan.

I am relying on recent Rev Proc 2004-16 to value the policies at the premiums paid by the plan (roughly $1.8M) as the plan started 9/03, premiums paid 10/03 and 12/31 plan year end - the valuation date for the 2004 RMD. The plans would not have had a chance to build a sustantial cash value yet. For 2004, I've calculated H's RMD at around $93,000 and W's at around $1,200.

Today, there is enough cash in the account for a couple years of payments but a final insurance premium is due this October that would deplete all but this years payments.

I've looked at incidental benefit rule and some postings here regarding that and it appears rollovers are exempt from the IB rule. Would you all concur?

Any suggestions or resources you might know of to tackle this? My only idea is to borrow against the policies, if available. This ultimately wil deplete cash proceeds of policy at death but we may have no other choice.

Thank you kindly in advance.