Ed Zollars, CPA
August 30th 04, 10:24 PM
Cal Lester wrote:
> The concept is an old one, in that IF the policy is NOT owned by the INSURED, it will (or can) remove that specific number of
> dollars from BOTH the Estate Taxable Estate (if there is one), (and also assuming that you do NOT die within three years) the LARGE
> Death Benefit can be paid to a named Beneficiary Income Tax Free.
Of course, with a significant single premium policy, you still have
the gift tax issues on the original funding of the policy.
Actually, if the insured never had "incidents of ownership" on the
policy in question, you don't have to worry about the death benefit
coming back into the estate if you die within three years. However,
if the insured has that ownership for any period, then you are
looking at a three year waiting period.
That little gotcha has caused some interesting claims against
advisers when the insured died within three years and the policy was
initially issued in the name of the insured because that's how the
paperwork was done. Normally the heirs name the agent, attorney and
accountant in their suit, since each one will tend to claim they
assumed "someone else" had assured that the ownership issue was
properly handled.
The other "gotcha" is that the attorney managed to draft the trust
(and quite often a trust is used to hold the policy) in such a way
that the trust is somehow obligated to pay debts of the estate,
which then yanks the trust back again. Again all three advisers
tend to get sued <grin>.
It's difficult for the accountant to foul it up directly, but we
usually would get pulled in because the argument will be made that
"we should have noticed" the problem with either how the agent was
having the policy issued *OR* how the attorney drafted the trust.
--
Ed Zollars, CPA
Phoenix, Arizona
> The concept is an old one, in that IF the policy is NOT owned by the INSURED, it will (or can) remove that specific number of
> dollars from BOTH the Estate Taxable Estate (if there is one), (and also assuming that you do NOT die within three years) the LARGE
> Death Benefit can be paid to a named Beneficiary Income Tax Free.
Of course, with a significant single premium policy, you still have
the gift tax issues on the original funding of the policy.
Actually, if the insured never had "incidents of ownership" on the
policy in question, you don't have to worry about the death benefit
coming back into the estate if you die within three years. However,
if the insured has that ownership for any period, then you are
looking at a three year waiting period.
That little gotcha has caused some interesting claims against
advisers when the insured died within three years and the policy was
initially issued in the name of the insured because that's how the
paperwork was done. Normally the heirs name the agent, attorney and
accountant in their suit, since each one will tend to claim they
assumed "someone else" had assured that the ownership issue was
properly handled.
The other "gotcha" is that the attorney managed to draft the trust
(and quite often a trust is used to hold the policy) in such a way
that the trust is somehow obligated to pay debts of the estate,
which then yanks the trust back again. Again all three advisers
tend to get sued <grin>.
It's difficult for the accountant to foul it up directly, but we
usually would get pulled in because the argument will be made that
"we should have noticed" the problem with either how the agent was
having the policy issued *OR* how the attorney drafted the trust.
--
Ed Zollars, CPA
Phoenix, Arizona