How the Gifting of a Life Insurance Policy Could Trigger a Gift Tax

How the Gifting of a Life Insurance Policy Could Trigger a Gift Tax

Payment by a client of one or more premiums would be considered a gift if the policy itself was owned by another person or party. The amount of the gift is the full premium paid. A reduction in the amount of the taxable gift would be allowed for the actuarial value of any interest in the policy’s benefits retained by the donor. For example, if a father paid premiums on a policy owned by his…

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The Gift Tax Trap When One Party Pays a Life Insurance Premium on Behalf of Another

The Gift Tax Trap When One Party Pays a Life Insurance Premium on Behalf of Another

Payment by a client of one or more premiums would be considered a gift if the policy itself was owned by another person or party. The amount of the gift is the full premium paid. A reduction in the amount of the taxable gift would be allowed for the actuarial value of any interest in the policy’s benefits retained by the donor. For example, if a father paid premiums on a policy owned by his…

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Potential Gift Tax Pitfalls When Three Parties are Involved in a Life Insurance Situation

Potential Gift Tax Pitfalls When Three Parties are Involved in a Life Insurance Situation

Planners should red flag every situation where one party owns a life insurance policy on the life of another and the proceeds are payable to a third party (commonly known as the “Goodman Triangle” as a result of a well-known court case4 ). Sometimes, in business cases, the situation results in income tax problems, while in other situations it causes serious and unexpected gift tax problems. Indirect, but nevertheless taxable, gifts can occur where one…

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The Gifting of Life Insurance to Save on Taxes

The Gifting of Life Insurance to Save on Taxes

An outright gift of a life insurance policy is a time-tested technique for accomplishing a number of estate planning objectives including, but not limited to, saving federal and state death taxes and protecting proceeds from the claims of the original policyowner’s creditors. The primary advantage of an outright gift of a life insurance policy is incredible leverage; the gift tax value of the lifetime transfer is considerably less than the death proceeds removed from the…

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4 Questions to Ask Regarding the Gifting of Life Insurance

4 Questions to Ask Regarding the Gifting of Life Insurance

As is the case with any other gift tax analysis, when life insurance is the subject of a transfer, the planner must ask four questions. In this article, we will review those four questions, and what each of them means. They are: Was there a gift, a gratuitous transfer for less than adequate and full consideration? Was the gift completed? What is the value of the gift? Is there an exclusion (such as the annual…

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The 7 Gift Tax Advantages of Life Insurance

The 7 Gift Tax Advantages of Life Insurance

Planners must be constantly aware of the gift tax implications of transactions involving life insurance. Gifts of life insurance, as opposed to gifts of income-producing property, are favored vehicles for many reasons. These include: A gift of life insurance may increase the donor’s spendable income since, after the gift, the donee often pays the premiums and the donor then can spend, invest, or give away the money that otherwise would have been paid in life…

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