insurance policy outside the estate
According Ed’s book, in order to keep an insurance policy outside the estate, you have to set up a trust to make sure that you are not the owner of the policy. If I am the owner of my spouse’s insurance policy, and my spouse is the owenr of my insurance policy, can we say that the life insurance is outside the estate in this case? If not, is there any other way to reach that goal without setting up a trust? Thanks.
Permalink Submitted by Al Fry on Thu, 2010-01-07 20:31
The whole idea of having an ILIT or IDGT owning a Life Insurance policy is to keep the death proceeds out of BOTH estates. Piling the proceeds into the surviving spouse’s estate solves nothing, since the estate taxes (when they come back next year) are generally not due until the surviving spouse’s death. Adult children owning the policies and being the beneficiaries would keep them out of the estate, however that arrangement creates other problems. For example who will pay the premiums? Unless each child has a present interest in the premium or policy there could be gift tax problems. Also at death, what assurance does the surviving spouse have that they will have access to the funds? Some children may do the right thing; others may take the money and run. Could cause a split in an otherwise amicable family.
Permalink Submitted by Bruce Steiner on Thu, 2010-01-07 22:00
If the amount involved is sufficient, and you want to keep it out of your estate, it’s common to set up a trust to own the policy.
If H and W own insurance on each other’s lives, and H dies first, H can leave the policy he owns on W to or in trust for the children, or in trust for W and the children. (There are some special things needed in H’s Will to keep the proceeds of the policy on W’s life out of W’s estate, but H’s lawyer should be familiar with this.) But W will receive the proceeds of the policy she owned on H’s life, and that money will then be in her estate. Depending on the size of the estates, that may be sufficient planning. (It works the same way in mirror image if W dies first.)
Bruce Steiner, attorney
NYC
also admitted in NJ and FL