Irrevocable Life Insurance Trust

[Guest Peacy]

Can you have an Irrevocable Life Insurance Trust in a 401(k) Profit Sharing Plan?

[Belgarath]

No. However, there is a very aggressive technique called a "subtrust" that has been used by a few practitioners, that I would NOT recommend - any client contemplating this would be well advised to seek advice from VERY experienced ERISA counsel. I'm going from very hazy memory from years ago, but I believe even the promotors of the concept didn't use it in a DC plan.

[Bird]

I think if you buy into the notion that you can do it all (and I'm skeptical), then you can do it in a DC plan.

[Belgarath]

Hi Bird - you may be right, but my memory (in my present mental condition, sketchy at best!) is the advocates only attempted to use it in a DB plan, as in a DC plan, it would violate the exclusive benefit rule - plan account balance being used to provide something that couldn't possibly benefit the participant, whereas in a DB plan there wasn't any "account balance" for the participant.

I know that in at least one case, the IRS actually disqualified a plan using a subtrust, but there was debate as to whether this was an indictment of the subtrust concept in general, or if the particular plan/subtrust had poor drafting.

Anyway, at best, not for the faint of heart...I'd adopt the Brave Sir Robin approach and "Run Away..."