Policy Reviews: Options when the policy is not the only problem

THE FELDMAN LAW FIRMGALLERIA TOWER II - HOUSTON

713-850-0700

No Trust? No problem…

Transfer for value exception – 101 (a)(2)Generally, a purchaser of an existing life contract will ultimately be taxed on the death benefit he/she receives over and above his/her cost basis in policy… EXCEPT

- Purchaser is insured- Purchaser is spouse of insured- Purchaser is partner of insured- Grantor trust qualifies!

What if the TRUST is the problem?

Community property contributions Poor use of GST allocationFamily dynamics and changesWant Grantor Trust status for install

sales?

Create new trust…and purchase?

Avoid transfer for value - Sec. 101 (a)(2) Avoid three-year rule - Sec. 2035 (d) Value of purchase

Interpolated terminal reserve (permanent) Unused premiums (term)

Give yourself new, more beneficial terms Grantor trust flexibility Dynastic trust provisions

Trustee of Trust A must agree

Fiduciary roleWhat’s good for Trust B should be

good for Trust A?Value of purchase in open marketProvide Trustee A motivation to sell