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Transfer for Value Rules on the Sale of a Survivor Life Policy

97733572In 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

Massachusetts Supreme Court Approves Decanting in Kraft Family Trust

From BryanCaveFiduciaryLitigation.com

What does a trustee do when an irrevocable trust needs to be modified?  Circumstances or laws may have changed in ways that could not have been anticipated at the time the trust was drafted.  In the past, a trustee who wanted to change some aspect of an irrevocable trust had few options, other than a court order to reform the trust which can be a costly and lengthy process.  Now, many states have alleviated the necessity of court approval to modify trusts by permitting “decanting.”  (For an example of such a statute, see our prior post, “How is an Illinois Trust Now Like a Fine Wine? It Can Be Decanted: A Summary of the New Illinois Decanting Statute”.)

Decanting is the term generally used to describe the distribution of trust property to another trust pursuant to the trustee’s discretionary authority to make distributions to, or for the

That Underwater Policy Does Not Have Any Value, Right?!

SCUBATaxpayers/insureds are often surprised when they are taxed on the value of an old policy that was underwater, when it was transferred to them, causing them to assume that the policy had no value for the government to tax. Here again, the taxpayers in Schwab v. Commissioner (9th Cir. 2013), were surprised that they had recognized taxable income on the distribution to them of life insurance policies from their non-qualified plan, which had surrender charges that exceed their cash value.

Michael and Kathryn, a married couple, were employees of Angels and Cowboys, Inc., which sponsored a non-qualified multi-employer welfare benefit plan that was administered by a third party. Each of them caused the plan to purchase, with a single premium, a variable universal life insurance policy with a three-year no lapse guarantee.

Steve Daiker in Ladue News

Steve Daiker in Ladue News

February 1, 2013

Authored by: Stephanie Moll

St. Louis Partner Steve Daiker was quoted at length Jan. 25 by the Ladue News concerning when, why and how to modify life insurance policies in order to protect yourself and your family. Life insurance should be obtained at a young, healthy age to qualify for a lower premium, then policy holders should be mindful of when to update policies, Daiker said. Marriage, the birth of a child, divorce, retirement, even changes in the growth of a business all are events that may warrant a change in life insurance, he said.

Recognition of Income on Roll Out of Split-Dollar Arrangement

The Tax Court in Neff v. Commissioner, TC Memo 2012-244 (8/27/2012) recently ruled on the income tax consequences of the termination of a split dollar life insurance arrangement (“SDLIA”), in ruling that the payment of a discounted amount by the employees on the termination of the SDLIA resulted in the recognition of income to the employees to the extent of the difference between the amount owed to the corporation under the SDLIA and the amount the employees paid. The Tax Court did not address the issue of the extent the equity portion of a SDLIA may be subject to income taxation on the termination of the SDLIA as that issue was not raised by the Service nor addressed by the Tax Court.

This case involves a pre-final regulation SDLIA to which the final regulations do not apply. Rather Rev. Ruls. 64-328 and 66-110 and Notice 2002-8 apply to determine the

Fiscal Cliff Talks Begins

Fiscal Cliff Talks Begins

November 16, 2012

Authored by: Matthew C. Jessee

On Friday, President Obama and Vice President Biden convened Majority Leader Reid, Minority Leader McConnell, Speaker Boehner and Minority Leader Pelosi for an initial discussion on how to avoid the combination of tax hikes and spending cuts that make up the “fiscal cliff.” While President Obama has stated his goal is $1.6 trillion in higher revenue, there is no agreement on how much deficit reduction the negotiators want to achieve and how much of that should come from taxes. In the event an agreement is not reached, the parties are already discussing fallback plans for $60 billion to $100 billion in deficit reduction to replace automatic spending cuts set to take effect in January.

For more information on the Fiscal Cliff, see our prior post.

 

Gifting Real Estate: A Comparison of QPRTs and Intentional Grantor Residential Trusts

As discussed in our prior post, “2012 Gift Tax Opportunities: Wait to Gift, but Do Not Wait to Plan“,  we discussed how the 2010 Tax Relief Act has provided a great opportunity for lifetime gifts to family members with a temporary increased estate and gift tax exemption of $5.12 million making these gifts potentially free of ever incurring gift or estate tax. The exemption will return to $1 million on January 1, 2013 unless Congress acts, and although most commentators think a return to $1 million is unlikely, there is a good possibility the exemption will be reduced.  However, many people are reluctant to make gifts of their liquid assets, in case they might have need of them as the get older.  Many people, therefore, are looking for ways of making a gift on a non-liquid asset, such as their home or another piece of real estate, such as

Mission: Possible — Saving Estate Taxes on Life Insurance

Since Tom is back in the news this week, and because I finally watched Ghost Protocol this weekend, I thought I’d re-post this November 2011 blog on Tom Cruise’s possible use of life insurance in his estate planning.  Keep in mind, based on any divorce settlement agreement he reaches with Katie Holmes, Tom’s need to maintain life insurance may change.

When I first saw this video of Tom Cruise performing his own stunts on the outside the Burj Khalifa in Dubai (the tallest building in the world), a mile and a half above the earth, for the movie Mission: Impossible — Ghost Protocol (aka Mission: Impossible IV),  my first thought was, “Wow, how much life insurance do you think he has?”  My next thought was “Think of the estate taxes his estate will have to pay on those life insurance proceeds if the life insurance isn’t held in a proper