<nesss01[at]yahoo.com> wrote in message
news:8a92dd1b-f612-4207-9f1e-fb874b1a90f0[at]l1g2000hsa.googlegroups.com...
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nesss01[at]yahoo.com wrote:

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Absent a trust, you could say this.

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As it's set up now, your wife will collect on your death. Unlimited
spousal transfer applies. It's when she passes, there is an estate tax
issue. Unless, of course, she spends it, or gifts it away over time.

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If you die at the same time, or she dies years later, there's little
difference, that $5M is an estate tax issue. With no trust, you can
change owners, getting the payout out of your estate, as we've
discussed. How many kids? Dishing it out to 2-3 kids, they may very well
burn through the money with no estate worry of their own.
Remember, your wife has $12K/yr/person. If she has 20 years, she gift
away quite a bit between the kids and grandkids.
JOE

I probably will set up a trust but I still want to understand the law.

So it seems it is incorrect to say that if a policy is owned by
someone other than the insured that there is no concern of estate
tax. There is indeed still a concern, it is merely shifted from the
insured's, to the new owners estate. Is this correct?

If so, i have 2 followup questions..

1) In the case where the insured and owner are different people, and
the insured dies and owner is still alive, shouldn't there be some
kind of gift tax as 5 million dollars passes from the owner to the
beneficiary?

2) Isn't an estate tax applied when assets leave an estate because of
the estate owners death?
If so, then in my original simultaneous death case, the policy is not
leaving my wife's estate because of her death, it is leaving it
because my death triggers the payout to the kids (as the wife, the
primary beneficiary is also dead at the time of my death)- and then
the policy ceases to exist. in the case where she lives 20 years
after me, its not the policy that is a problem its, the actual cash
that she got 20 years ago when I died. In my hypothetical situation,
she never has the actual cash, and the policy leaving her estate is
not due to her death.

Thanks




On Nov 15, 4:04 pm, kastnna <kast...[at]auburnalum.org> wrote:
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======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.

One last "nudge" towards the ILIT:

As Cal mentioned there is a three year look-back when gifting an
EXISTING insurance policy to an ILIT. If you gift this policy to an
ILIT and die within three years, ownership is reverted back to the
original owner, not the ILIT. That's one reason to not delay doing
this (if you are indeed thinking about this). Obviously, newly issued
policies do not have a look back because the had no previous owner.

Putting this policy in the ILIT is a gift subject to all the rules and
requirements set by the IRC. As Joe said, the annual premium payments
you make would also be gifts. If the premiums exceed the annual gift
exclusion, that complicates things (but not much).

Luckily this policy is term (it has no cash value). When gifting a
cash value policy, that value is also considered a gift. That can be a
major drawback for policies with large cash values. The IRS has been
grumbling about this inequity for years. They have been pushing for
using the interpolated terminal reserve or the open market value of a
policy as the true value. IF they ever succeed, it will mean that a
term policy will have the same gifting drawbacks as permanent
insurance. Maybe they will grandfather existing ILITs, maybe the
won't.

On Nov 15, 3:29 pm, "Don" <dwz...[at]telus.net> wrote:

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Yes, an insurance policy can have "the estate of xxxx" as the bene. It
happens quite frequently for an insured to name his estate as the
beneficiary, altough it's not advised. There are a handful of ways I
THINK this could play out.

1. If XXXX is the also insured, and the owner is still alive then
you've "forced" the $5M into the insured's estate when it otherwise
wouldn't have been (it would have been part of the living owner's
assets).

2. If XXXX is NOT the insured and the owner is still alive there
should be no major problems. However, it might be a pain for XXXX to
try and get a $5M check cashed that is made out to his estate even
though he is still alive. XXXX's heirs might even sue him on the
grounds that the $5M was intended to go to his estate (IOW them), not
XXXX's pocket (this might be reaching, I'm just speculating out loud).

3. If in any of these instances XXXX is also dead, you've just added
$5M to their XXXX's estate (that's bad, tax-wise).

Somebody please double check my reasoning. I've "thunk" myself in
circles on this one.

"kastnna" <kastnna[at]auburnalum.org> wrote in message
news:c3a28207-3041-4ecd-b405-3558165729b7[at]i37g2000hsd.googlegroups.com...

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If the will is written that way, could not the beneficiary of an insurance
policy be made "the estate of XXXX"?

nesss01[at]yahoo.com wrote:

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Kastnna replied as well, but I'll try with a simpler spin.
I own (for example) my own policy. When I die, even though the policy
has my kid as beneficiary, since I own the policy, it's in my estate for
estate tax purposes. For 2006-8, $2M is exempt from estate tax. In
2009, it's $3.5M.

In my case, I don't own any insurance. It's owned by an ILIT
(Irrevocable Life Insurance Trust), the trustee will dish out money at
my wife's request, if she survives me, and to my child after my wife's
death. Now, to Kastnna's point, this is a way to protect the money from
some second husband getting his hands on it, or it finding its way to
his kids. And my wife may request disbursement of a percentage each
year, or just leave it for our child to draw as needed. The premiums are
paid each year with money gifted to the trust. If you have no issue with
an irrevocable transfer to your kids, a change of ownership can work,
but it doesn't protect the kids from the spouses gaining access to the
money.
As long as you've changed owners, the USDA does not apply, that
discussion was more of a tangent to the real important issues. Although
any facts like that are worth being aware of.
JOE

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Upon YOUR Death, any policy that is in force, that YOU are the OWNER
of, regardless of who the insured is, would be included in YOUR Estate.

Conversely, upon your death, any policy currently (and not transferred
within
the lookback period) that is N O T in anyway OWNED by you prior to
death,
would NOT normally be included in your Estate.
Cal Lester CLU

On Nov 15, 2:01 pm, ness...[at]yahoo.com wrote:
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It is true that if the policy is owned by someone other than the
insured it is not include in the INSURED'S estate at their passing,
but it is included in the OWNER'S. That's not a problem when only the
insured dies (if the owner isn't dead, their estate won't be
probated). It does become a problem when the owner dies. Even if your
wife dies 20 years after you, if the $5M is still in her estate, it
will be included in her estate.

If you are trying to avoid paying estate taxes on this amount (for
which I don't blame you) you really should look into a simple trust.
Giving ownership to an outside party (i.e. children) is also an option
but it brings all new risk into the equation. For instance, what
happens when your kid marries someone you disapprove of and then dies
prematurely? Do you like the idea of his dispised widow being able to
change your beneficiaries?

Thanks all. I think I understand the importance of change in ownership
of the policy, and that this change can be simple, by just
transferring it to another person, or more complex by transferring to
a trust.

What I am having difficulty with is reconciling that there seems to be
a consistent affirmation that if the policy is owned by someone other
than the deceased/insured, there should be no estate tax, with the
fact that it seems in the hypothetical case I presented, where the
policy is indeed owned by someone other the insured/deceased, and even
according to the The Uniform Simultaneous Death Act that you quote,
the payout would go straight to the kids and not to my wife first,
that there is estate tax.

Can someone point out my misunderstanding?

On Nov 14, 11:23 pm, joetaxpayer <joetaxpa...[at]nospam.com> wrote:
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On Nov 15, 11:37 am, "Don" <dwz...[at]telus.net> wrote:

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Actually that's far and away "the norm". It is practically unheard of
for a trust or will not to have a superceding clause addressing
simultaneous death.

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote in message
news:46CdncJRFYE7JabanZ2dnUVZ_qCunZ2d[at]comcast.com...

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In some places it is possible for the spouses themselves to decide how an
estate is handled in that situation. For example, my wife and I have a
clause in our wills saying: "If we both die together in circumstances that
make it impossible to determine which of us died first, then the estate
shall be divided as XXXXX and go to yyyyy and zzzzz, etc. " or something to
that effect. According to our lawyer, the "order of passing" regulations in
the law kick in only if the will is not specific enough.

On Nov 14, 8:21 pm, "Elizabeth Richardson" <erich...[at]worldnet.att.netwrote:

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If my wife has any say so, there are definitely rules as to when I can
die

But for our purposes, the USD Act is very valuable. Frex, suppose
husband and wife with no children each die in a plane crash. However,
hubby lives for 2 days before dying of injuries.

Without the law, the wife's estate passes to him for 48 hrs and then
both his estate and her [former] estate pass to HIS heirs. Her heirs
receive nothing. With the law, the wife's estate assumes hubby died
first and HER heirs receive her estate. Hubby's estate assumes she
died first and HIS heirs receive his estate. By far a more equitable
solution, me thinks.

IIRC, the time period for simultaneous death is 5 days and it doesn't
even have to be from the same event. I need verification on this
though.

joetaxpayer wrote:

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There are multiple references to this, one of which is at
http://definitions.uslegal.com/u/uni...ous-death-act/
which states: "The Uniform Simultaneous Death Act provides that if an
insured person under a life policy and a beneficiary die at once, the
insured will be presumed to have survived, unless otherwise provided. In
that case, the policy proceeds would go to the alternate beneficiary."

I believe the OP still needs to understand the estate tax implications,
and the savings possible by a change of ownership of the policy.
JOE

Elizabeth Richardson wrote:

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I understood that even in a tragic accident such as a plane crash, that
for legal purposes, one spouse is presumed to die before the other. Most
inheritance is based on order of passing and none I've seen account for
a simultaneous set of deaths. I've not dug too deeply into this topic,
but I see the need coming....

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Not "allowed"? Are there rules as to when you can die?

Elizabeth Richardson

On Nov 14, 4:25 pm, joetaxpayer <joetaxpa...[at]nospam.com> wrote:
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In addition to these reasons, it may be wise to use a trust because:

1. With the children as owners, they can make changes to the policy
without dad's approval.

2. Past courts have ruled that if the grantor (the policy owner)
maintains incidences of ownership after the gift, then the gift is not
completed and reverts back to the estate. Its easier for a judge to
imagine a father exerting control over his children than he can a
grantor exerting control of a trustee bound by fiduciary duty. In
reality, most of the trustees I know check with the grantor before
they do anything, but on the surface it looks more kosher to the IRS.

All that said, an ILIT can be simple (with no ongoing maintenance) and
inexpensive to establish if one avoids all the unnecessary bells and
whistles available.

nesss01[at]yahoo.com wrote:

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First, I don't believe you are allowed to die simultaneously, but the
point is moot, given the rest of your question.

Your wife owns the policy, so the $5M is in her estate upon your death.
If you can plan your death for 2010, there is no estate tax, but before
or after, there are exempt amounts lower than that $5M.

The simplest solution is to transfer the policy at the next renewal date
to the kids. Then each year, gift them the funds needed to pay the
premium. Then, on your death, they collect with no estate tax
consequence at all.

There are more convoluted ways to set this up with trusts preserving
your exemption and your wife's ability to tap some proceeds before she
passes, but keeping the money from first passing through your estate and
then hers. This is more applicable to assets with a present value, for
people actively trying to get money out of their taxable estate.

(The above is an oversimplification, more details can run a couple pages)

JOE
www.blog.joetaxpayer.com

If I have term life insurance for 5 million dollars, owned by my wife,
with my wife the primary beneficiary and our kids the contingent
beneficiaries, and we both die simultaneously, will there be estate
tax? (assume our wills have eachother as primary beneficaries and kids
as secondary for everything)

Thanks