Life Insurance In Estate Planning, Valuation Issues, Marital, Deduction, And Referral And Minimization Of Estate Taxes Flashcards
Incidents of ownership generally make the life insurance values or proceeds, includable, and the gross estate of the insured. What do incidents of ownership include?
Right to assign, to terminate, to borrow against the cash reserves, to name, beneficiaries, and to change beneficiaries
When a state transfer taxes are a concern, merry couples with combined states over 27,220,000 more thought must be given to selecting owners and beneficiary. What are some of the alternatives
Spouse is the owner and beneficiary
Mature children is the owner and beneficiary
Irrevocable trust is the owner and beneficiary (best solution)
What is an irrevocable life insurance trust ILIT?
A trust is created to own and be the beneficiary of life insurance policy on the trust makers’s life
Specifically intended to replace wealth to younger family members when their parents typically have a charitable remainder trust
Is paying a premium on an insurance policy and incident of ownership?
No
Ted assigns his life insurance policy, which has a face value of $500,000 and an interpolated terminal reserve plus under premium value of $50,000, to his son. What is the taxable gift?
Taxable gift of 32,000
($50,000 less than $18,000 exclusion)
A wife purchases a $500,000 life insurance policy on her husband‘s life, naming her son as the primary beneficiary. Upon the husband‘s death what happens?
The wife will be held to have made a $500,000 gift to her son. This is because she could have named herself as the beneficiary an ILIT is a better owner in the situation
What is corporate and partnership recapitalization?
Business owners may wish to reduce the value of the business interest in their estate through stock, capitalization, or by gifting closely held stock
Owner will own a combination of a limited number of voting shares, usually common, and all the voting or non-voting preferred shares preferred shares are entitled to a substantial dividend. Owner will give the remaining common chairs to the children. Those shares can have voting rights or be non-voting, which is typical all future appreciation will be shifted to the younger generation.
Does a life interest count towards the marital deduction?
No, because it terminates at the spouse’s death, they have no retained interest
What is a qualified domestic trust QDOT?
Similar to a QTIP
It is for non-US citizen spouses
To qualify for the marital deduction property must pass to a qualified domestic trust intent, is to ensure the collection of state taxes on marital deduction property intended for the benefit of a foreign citizen spouse
What are exclusions of property from the gross estate?
Spousal property
1/2 of community property
Life insurance owned by others
A life estate (a life state, gives the owner the right to possess, enjoy and arrive income from the property for life, after which time the interest terminates. There is no retained interest.)
What is the net gift technique?
Involves a gift made on the condition that the Dan pays the gift tax
Limitations to this technique, which include:
Donors $13,610,000 exclusion must first be exhausted
Decedents gross state includes the amount of gift tax paid by the donees on net gifts made by the decedent within three years of death
Amount of gift that the Donor would have paid minus exclusion. Then take that amount and divided it by 1.4 = gift tax paid by Donee
The adjusted taxable gift to the donor’s estate is calculated by taking the total gift minus the explosion minus the taxes paid by the donees = equal the adjusted taxable gift in the donors estate
What is the reversed gift technique?
When one spouse possesses his most of the family wealth, and the less affluent spouse has a relatively short life expectancy. The wealthier spouse makes a gift of low basis assets to the dying spouse. This inclusion steps up the basis of the property and better utilizes the dying spouses exemption amount.
Technique will work if the spouse lives more than one year after the transfer
