Community Property Issues

Community Property Issues

There are currently ten states subject to community property or marital property (Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington are community property; Wisconsin is a quasi-community property state). Life insurance obtained by one or both of the spouses during the marriage while domiciled in any of these states is typically community property. Essentially, this means each spouse, from inception, is the owner of one half of the policy. This community property…

Read More

How to Handle Group Term Life Insurance in An Irrevocable Trust

How to Handle Group Term Life Insurance in An Irrevocable Trust

Group insurance is an ideal type of life insurance to transfer to an irrevocable trust for many reasons. In this article, we will explore a variety of different opportunities that you may be able to benefit from. Some of the reasons that group insurance might be ideal include: A transfer of group term life to an irrevocable life insurance trust makes significant estate tax savings possible at minimal gift tax cost. There is a considerable…

Read More

How To Handle Last To Die Insurance in an Irrevocable Trust

How To Handle Last To Die Insurance in an Irrevocable Trust

Last-to-die (or second-to-die) policies pay at the second death, regardless of which insured dies first. These survivorship contracts are often used in estate planning with irrevocable trusts for the following reasons: The payment pattern of last-to-die policies often tracks with the estate’s need for cash; by paying proceeds only after the survivor of the insureds (typically, a husband and wife) has died, the event which creates the need for the greatest amount of federal estate…

Read More

Income Tax Implications of Irrevocable Life Insurance Trusts

Income Tax Implications of Irrevocable Life Insurance Trusts

Typically, an irrevocable life insurance trust will not be funded. Since it holds no income producing assets, generally no income tax problems are created. In general, if an irrevocable life insurance trust is funded, income it generates is taxed to the trust since it is a separate entity. To the extent income is paid to the trust’s beneficiaries, it is taxed to them rather than to the trust. However, if the trust is treated as…

Read More

Federal Estate Tax and Irrevocable Life Insurance Trusts

Federal Estate Tax and Irrevocable Life Insurance Trusts

Life insurance proceeds, if includable in the insured’s gross estate, will generate federal estate taxes if the insured is not survived by a spouse and/or does not wish to leave the insurance proceeds in a manner that will qualify for the estate tax marital deduction. Who will pay this tax? Should it be paid by the beneficiaries out of the proceeds or by the heirs of the probate estate? Should it be apportioned between them?…

Read More

What The Attorney Should Consider In Drafting

What The Attorney Should Consider In Drafting

Although life insurance agents and financial planners do not draft documents, an understanding of certain drafting tools and techniques is helpful, if for no other reason than, to provide a backup and a second pair of eyes for the attorney. An irrevocable life insurance trust should generally contain one or more of the following provisions: The right of the Crummey power beneficiaries to make withdrawals extends to contributions to the trust from all sources. This…

Read More

Other Methods of Reducing Gift Taxes With Irrevocable Life Insurance Trusts

Other Methods of Reducing Gift Taxes With Irrevocable Life Insurance Trusts

Split-gifts A split-gift is yet another way to increase the number of gift tax annual exclusions and unified credits available for each gift to a Crummey trust. A gift can be split by having the nondonor spouse agree to be treated as if he had made one-half of the gifts made by the donor spouse. The election for a split-gift is made on the gift tax return for the year in which the gift is…

Read More

Tax Problems Related to Crummey Powers

Tax Problems Related to Crummey Powers

Unexpected gift tax problems can arise in certain situations upon the lapse (nonexercise) of a Crummey power. In most cases, this problem will not occur or, if it does, it will be minor. But planners should be aware of it in cases where the value of a life insurance policy or subsequent premiums are large. Specifically, the problem most frequently arises where premium outlays will exceed the greater of $5,000 a year or 5 percent…

Read More

Reducing Gift Taxes and Premium Payments With Irrevocable Life Insurance Trusts

Reducing Gift Taxes and Premium Payments With Irrevocable Life Insurance Trusts

When a client transfers a life insurance policy to an irrevocable trust, a gift is made subject to the gift tax. The tax, if any, payable on that transfer depends on the fair market value of the policy, the availability of the annual exclusion, and the availability of the lifetime exemption. If the annual exclusion is available, then up to $15,000 (in 2019, as indexed for inflation) of the value of the gift is shielded…

Read More

Irrevocable Life Insurance Trusts and Selecting a Trustee

Irrevocable Life Insurance Trusts and Selecting a Trustee

A trustee of an irrevocable life insurance trust must review the trust document for efficacy in meeting both tax and dispositive objectives, set up a trust account, purchase the life insurance, receive premiums from the grantor, notify beneficiaries holding demand powers of their rights each year, and pay premiums to the insurance company. Clients, even though charged only a hundred dollars or so each year for this service, often do not perceive the value they…

Read More
1 2