November 17, 2014
Authored by: Kathy Sherby and Stephanie Moll
In two substantially identical private letter rulings, PLR 201423009 (released 6/6/2014) and PLR 201426005 (released 6/27/2014), the taxpayers requested guidance as to the impact of a sale of a survivor life policy from a grantor trust where both insureds are the grantors to a grantor trust where only one of the insureds is the grantor.
The proceeds of a life insurance policy are free from income taxation in the hands of the recipient after the death of the insured(s), unless during the life of the insured(s) there was a transfer of an interest in the policy for valuable consideration. However, the transfer for value rule does not apply in two circumstances set out in § 101(a)(2)(A) and (B).
1. As provided in § 101(a)(2)(A), the transfer for value rule will not