Estate Planning Newsletter

• Giving to Charity
  It is possible to set up a trust for charitable purposes. Charitable trusts are quite common, but certain requirements must be met. Purpose of a Charitable Gift Reasons for charitable gifts funded through... Read more.
• Revocable Bank Deposit Totten Trusts
  A decedent’s assets may be transferred upon their death to their heirs or other beneficiaries through probate. “Probate” is the legal process by which a court determines who receives a decedent’s assets under... Read more.
• The Reciprocal Trust Doctrine Can Trap the Unwary
  Estate planning attorneys utilize a number of different estate planning techniques to accomplish the goals of their clients and sometimes to minimize transfer taxes. One common estate planning technique is the transfer of assets into an... Read more.
• Denying a Death Claim on a Valid Life Insurance Policy
  The beneficiary of a life insurance policy is the person entitled to receive the death benefit of the policy when the insured person dies. In order to collect on a death benefit claim, the beneficiary must usually comply with specific... Read more.

• 3 Estate Planning Documents Every Parent Needs
• The importance of estate planning
• Priscilla Presley and Riley Keough to Settle Dispute Over Family Trust
• 8 estate planning tips for advisors with artists and entertainer clients
• Fiduciary Duty Breached by Nephew Who Withdrew Funds That Belonged to Family Trust

Life Insurance Policies and Marital Settlement Agreements

Many marital settlement agreements require one party to maintain a life insurance policy on his or her life naming the former spouse as the primary beneficiary. While this provides some financial security for the former spouse, it may also result in an adverse unintended tax consequence for the insured spouse’s estate.

For example, if the ex-husband is required to maintain a $1 million life insurance policy on his life, naming his ex-wife as beneficiary, on the ex-husband’s death his ex-wife will receive the $1 million face amount of the policy directly from the life insurance company. If the ex-husband was the owner of the life insurance policy and paid the premiums on the policy, the IRS will include the $1 million face amount of the policy in the ex-husband’s estate for the purposes of calculating the amount of estate tax owed by the ex-husband’s estate. If the ex-husband died in 2013 with a taxable estate of $5.25 million plus the $1 million in life insurance, the inclusion of the life insurance proceeds would result in a $400,000 increase in the estate tax owed.

The foregoing result may be avoided through the use of a tax-sensitive marital settlement agreement and an irrevocable life insurance trust. The ex-husband may still be required to maintain a $1 million life insurance policy with his ex-wife as beneficiary, but the life insurance policy would be owned by the trustee of the irrevocable life insurance trust. The ex-husband may transfer money to the trust for the payment of the premiums. Since the payments are required pursuant to a court order, the payments are not considered taxable gifts. Since the irrevocable life insurance trust, not the ex-husband, is the owner of the policy, the $1 million life insurance policy will not be included in the ex-husband’s estate for the purpose of calculating the estate tax owed.

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