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716:. If the policy is owned by the insured, the proceeds will be subject to estate tax. (This assumes that the aggregate value of the estate plus the life insurance is large enough to be subject to estate taxes.) To avoid estate taxation, some insureds name a child, spouse or other beneficiary as the owner of the policy.
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Customarily, the trustee of the insurance trust is authorized, but not required, to either purchase assets from the insured's estate or lend insurance proceeds to his or her estate. Since the trustee of the insurance trust possesses all incidents of ownership in the insurance policy, the insurance
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policies. Upon the death of the insured, the trustee invests the insurance proceeds and administers the trust for one or more beneficiaries. If the trust owns insurance on the life of a married person, the non-insured spouse and children are often beneficiaries of the insurance trust. If the trust
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The insurance proceeds will be included in the beneficiary's taxable estate at his or her subsequent death. If the proceeds are used to pay the insured's estate taxes, it would at first appear that the proceeds could not be on hand to be taxed at the beneficiary's subsequent death. However, using
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Insurance trusts may be funded or nonfunded. A funded life insurance trust owns both one or more insurance contracts and income producing assets. The income from the assets is used to pay some or all of the premiums. Funded insurance trusts are not commonly used for two reasons:
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only if the insured survives the date of the transfer by not less than three years. If the insured dies within this three-year period, the transfer will be ignored and the proceeds will be included in the insured's taxable estate.
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If possible, the trustee of the insurance trust should be the original applicant and owner of the insurance. If the insured transfers an existing policy to the insurance trust, the transfer will be recognized by the
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trust provides the insured's estate with liquidity while shielding the insurance proceeds or assets purchased with the proceeds from estate tax when the insured dies, provided the trust has the appropriate
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insurance proceeds to pay the insured's estate taxes effectively increases the beneficiary's estate since the beneficiary will not have to sell inherited assets to pay such taxes.
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The Use of Life
Insurance In Estate Planning: A Guide To Planning And Drafting, Jon J. Gallo, Fall 1999 Real Property, Probate and Trust Journal, American Bar Association
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owns "second to die" or survivorship insurance which only pays when both spouses are deceased, only the children would be beneficiaries of the insurance trust.
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Unfunded insurance trusts own one or more insurance policies and are funded by annual gifts from the grantor.
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There are drawbacks to having insurance proceeds paid outright to a child, spouse, or other beneficiary.
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the grantor trust rules of IRC §677(a)(3) cause the grantor to be taxed on the trust's income.
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i) Control the distributions
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The solution to both drawbacks is usually an irrevocable life insurance trust.
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vi) To benefit non-trust nominees
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Usually, people set up
Insurance Trust for the few reasons as seen below:
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iii) Take care of themselves
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http://www.einsurance.cf/2015/02/permanent-types-of-life-insurance.html
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is important if the insurance proceeds are to escape federal
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In 2011, the threshold for estate taxation is $ 5,000,000.
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which is both the owner and beneficiary of one or more
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370:Accumulation and maintenance
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165:Legal history of wills
55:"Life insurance trust"
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541:Power of appointment
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277:Lapse and anti-lapse
271:Property disposition
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96:November 2007
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57: –
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51:Find sources:
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29:This article
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645:Criminal law
608:Totten trust
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439:Testamentary
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352:Common types
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345:Constructive
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146:Part of the
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38:Please help
33:verification
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725:beneficiary
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565:Advancement
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792:References
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384:Charitable
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66:newspapers
524:Intestacy
423:Remainder
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338:Resulting
289:Abatement
284:Ademption
196:Oral will
861:Category
650:Evidence
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628:Contract
529:Testator
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203:Sections
765:settlor
704:In the
534:Probate
389:Purpose
333:Express
231:Contest
184:Codicil
131:estates
80:scholar
616:Other
324:Trusts
150:series
126:trusts
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87:JSTOR
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358:Bare
129:and
59:news
42:by
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688:A
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