Life Insurance and Taxes

[scagnt83]

No, the only gift tax issue would be if one person received the funds and tried to distribute it to other people. This would create a gift tax implication beyond the exclusion.

Not true from my understanding.

In the OPs example, where Child A owns the policy & lists children B & C (and A of course) as benes; Child A is giving a gift of the DB to the other two.

I have had multiple estate attorneys confirm this.

You can list as many benes as you want if the insured owns/controls it. If not, the IRS/courts consider it as the non-insured owner giving a gift to the other two.

Read case #4 on this link

I didnt believe it at first, but its true. And as Vol's link shows, was the heart of the "Goodman Triangle".

 

[BNTRS]

It is gift tax, sorry I don't know what the hell I was thinking when I wrote that.

Too many projects and too much caffeine, or at least that's going to be my scapegoat for this one.

 

[iiinycboi]

ahhh good stuff, so it is gift tax on daughter A and not income taxable on daughter b and c.


so no way to avoid this, other than have all beneficiary listed as owner or the insured being the owner.

 

[BNTRS]

ahhh good stuff, so it is gift tax on daughter A and not income taxable on daughter b and c.


so no way to avoid this, other than have all beneficiary listed as owner or the insured being the owner.

If daughter A is the owner and beneficiary it's not a Goodman Triangle. She would however, have a very difficult time getting the proceeds to the other siblings.

If Daughter A and the siblings are listed beneficiaries than the payment to the non-owner siblings is a Goodman Triangle and their benefit is subject to Gift Taxes.

Best to have the insured be the owner as well, or establish a trust that owns the policy and is beneficiary. The children are then beneficiaries to the trust; this will avoid the tax issue.

If an ILIT were used on a new policy than the death benefit would not be includeable in the insured's gross estate, which may be coveted.