Life Insurance
Hello,
We know that Life Insurance is income tax free. And it can also be estate tax free as well….in an Irrevocable Life Insurance Trust(ILIT). My question is…is life insurance estate tax free in this example too:
I own a life insurance policy on my father that I am the beneficiary of.
Is this example the same as an ILIT as it pertains to estate taxes. The policy is in my name so it should be in my estate, not his, right?
Not sure if I need to create an ILIT for him if I can just own the policy myself.
Vdo
Permalink Submitted by mk foss on Tue, 2008-10-21 20:59
The proceeds should be tax free. The alternative to an ILIT is to have the children own a policy on the parent’s life.
Permalink Submitted by Al Fry on Tue, 2008-10-21 21:06
Youcan own it and if he never had any incidents of ownership, it should be out of his estate.
Permalink Submitted by charles lore on Wed, 2008-10-22 01:44
If you should die the policy is in your estate. Not the face value but the “interpolated terminable reserve plus unearned premium.” This is roughly the cash value.
Even though it may not apply here other reasons for an ilit from your fathers perspective are control and confidence. He can have confidence premiums are being paid ( since he’d be gifting them into ilit) and terms of ilit can dictate how it gets to you the beneficiary.
Permalink Submitted by C. Nivens on Wed, 2008-10-22 13:35
No, you do not need an ILIT. He has no ownership, thus not taxable in his estate. Plain and simple.