Definitely need more details Bob. We could use a complete picture of
your mother's current estate. Who owns what, how much, and how is
ownership titled? What trusts are in place and what are the relevant
provisions? You can start by running a projected estimate of your
mother's estate tax liability (and your resulting inheritance) if she
continues with the current plan. That will give us a baseline for
comparison.

It sounds like your father established a credit shelter trust (bypass
trust). If so, then your mother is not the actual owner of the assets,
the trust(s) are. This means that if structured properly, the
insurance agent is absolutely correct that the death benefit proceeds
will pass to the heirs without going through probate and without being
subject to inheritance taxation. I imagine that he is proposing that
the trust by the insurance on your mother's life. If that's the case,
how much she can gift, estate tax exemption amounts, lifetime gift
credits, etc, etc will not much matter. The fancy part is usually
getting the money to make the premium payments out of her estate in
the first place. The credit shelter trust will have already taken care
of that.

My biggest concern is that at her age she can't buy enough insurance
to make the benefit worth it. How much did the agent say she could get
for $750k? $1.2M maybe $1.5M? Could the money have grown to this
amount (or more!) by itself in a reasonable period of time? How much
risk would she be willing to accept to forgo the guarantee of the
insurance? You also need to keep an eye out for look back periods if
any new trust and/or gifts are being established.

This kind of planning usually falls into the arena of chartered life
underwriters (CLUs). They are kinda the top dogs of insurance. Is this
agent certified in any way? The concept is not his own. If he is not
qualified to implement and analyze the validity/suitability of a plan
like this, then you can always take the idea to a more qualified
individual.

robert.moredock[at]gmail.com wrote:

- quote -

What are the numbers involved? In 2007 the amount you can leave with no
tax consequences is $2M. You don't mention if a proper A/B trust was set
up to keep your Dad's half (or his estate tax credit limit) protected.
But it sounds like that may have been done already.
How much insurance is he claiming the $750 will buy?
What is the size of both your mother and father's estate?
Is she taking advantage of the $12,000/yr gifting?
How many heirs does she have?
With those numbers, there are likely many alternatives that won't rub
you the wrong way. The risk is that after 2010, the exempt amount goes
right back to $1M.
JOE

On Jul 17, 4:06 am, "robert.mored...[at]gmail.com"
<robert.mored...[at]gmail.com> wrote:
- quote -

I've never heard of a credit balance trust before, and googling the
term doesn't yield anything useful. Can you briefly describe their tax
implications? What kind of tax is your mother or her heirs avoiding?

Dave

A broker with a national firm has solicited my 87 year old mother and
proposed that she use the cash and securities in my deceased father's
credit balance trust to purchase a life insurance contract on herself
so that the proceeds of the life insurance contract can substantially
increase the tax free payout to her heirs. The purchase amount would
be about $750K. As I understand it, the money can and will go to her
heirs totally tax free, until at least 2011.

Luckily, I am the successor trustee for my dad's estate, so nothing
can happen without my OK. I know what I think of this plan, but I
would like some one who has experience and an outsider's perspective
to comment on the pro's and cons. There might be something I am
missing...


Bob