Tim Williams wrote:
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Tim,
You probably know this already, but this is a very complicated question
to answer. You'd need to share a lot of info that you probably don't
want to put up on usenet.

"Considerable wealth" implies you've done some estate planning (or need
to) - have you discussed this over with your estate planning attorney?
If not, I'd recommend doing so. Especially if you've spoken with the
people on the insurance side but nobody else. They're qualified to
address the use of WL but really it needs to be integrated into all of
your other estate plans. And depending on the specifics, WL may factor
into things in a big way, or not at all.

-Tad

Cal Lester wrote:

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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

Tim Williams wrote:

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This is a complex question, and depends largely on just what you are
trying to accomplish, the exact policy (or policies) under
consideration, the alternative methods of achieving a similar goal,
and the flexibility that may be needed. There are number of
implications that are driven by *how* you do it (is it going to be
owned individually or in an irrevocable life insurance trust) and
what your goals/needs are.

In essence, I think you're putting the solution before the problem.
So I would strongly suggest first sitting down with a competent
professional to determine just what your real goals are, and then
perhaps you'll find a life insurance solution is what you need. Or,
perhaps not...

I will point out that, ultimately, a life insurance policy only
avoids income taxation if you collect the death benefit--which means
it needs to be in force until you die. Obviously, we'd hope that is
a long term strategy <grin> , so it means a decision that you had
better not regret ten years later. While you can restructure things
tax free, you are going to deal with a limited set of options to do so.

And, as well, you may avoid income taxes only to trigger estate or
gift taxes if you retain control of the policy. And if you don't
retain control, the question becomes if you are really ready to
"give up" the option of being able to tap that asset.

Finally, don't get too focus on "avoiding taxes" (an emotional
response) and rather concentrate on maximizing wealth after taxes.
Accomplishing the first won't automatically achieve the latter. If
the professional you consult with doesn't point this out, I'd look
for another adviser--because either you have someone who is trying
to play your emotions to his/her advantage (and all of us benefit
tend to benefit more from you making certain specific choices) *OR*
who truly doesn't know what he/she is doing.

So I guess the proper answer to your first question (should a person
with considerable wealth invest in the policy) is:

Yes and no.

--
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.

In addition, the premium paid is protected from YOUR creditors.
Cal Lester CLU


"Tim Williams" <bigbill9111[at]yahoo.com> wrote in message news:2ph466Fkalp7U1[at]uni-berlin.de...
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Should a person of considerable wealth use Single Premium Whole Life
insurance as a vehicle to stow away money and avoid taxes? What are the
implications of doing this?