Ch 2 - Life Insurance In Estate Planning Flashcards Preview

CLU > Ch 2 - Life Insurance In Estate Planning > Flashcards

Flashcards in Ch 2 - Life Insurance In Estate Planning Deck (18):

Individuals with modest wealth or probate

Who uses life insurance for estate planning?


Because of its self completing nature and

Because special tax rules apply

Why is life insurance in estate planning unique?


Estate enhancement

Wealth replacement/estate liquidity

What 2 purposes does life insurance serve?


Income replacement/support obligation needs

Special circumstance support needs

What does estate enhancement mean?


When payable to the executor (section 2042.1)

Insured has incidents of ownership (section 2042.2)

When is life insurance included in the gross estate?


Estate is designated beneficiary

Estate becomes beneficiary by default

Designated beneficiary bound to pay expenses

What constitutes life insurance being payable to the executor?


Creditors Administrative expenses

State death taxes


When the estate is designated as beneficiary, benefits maybe subject to:


1. Any valuable right

2. Insured cannot be owner even as a trustee

3. Cannot hold right or option to re-acquire

4. Incidents attributed to controlling shareholder or general partner in business owned policy if not payable to or for the business

What are the 4 incidents of ownership in life insurance?


Ability to change beneficiary

Ability to access CSV

Ability to use as collateral

What is considered any valuable right when determining incidents of ownership?


Life insurance is included in gross estate if incidents transferred within 3 years of insurers death

The 3 year rule only applies to gifts of life insurance policies

What is the 3 year rule mean for life insurance?


IRS Code requires payment from death benefit if inclusion in the gross estate results in federal estate taxes

What is the impact of life insurance on estate taxes?


True or false Taxes on life insurance can be apportioned elsewhere through decedent-insured will



  • net death benefit if included in insured's gross estate
  • replacement cost or interpolated terminal reserve + unearned premium if policy on another's life is included in the gross estate or given away during the insured lifetime

what is the value of life insurance policy for gift and estate tax purposes


  • marital deduction is unlimited for outright beneficiary deisgnation to spouse at the time of death
  • payable to trust or by settlement opotioins must meet the marital deduction rules

How does the Marital deduction work for life insurance


  • most will be direct beneficiaries
  • when estate taxes are a concern,
    • key will be access without inclusion
    • matital deduction could be a fall back position

What are the planning concerns for transfers of life insurance to a spouse


  • additional domestic help or child care costs
  • proide for increased death taxes
  • provide for death costs
  • additional liquidity for both estates
  • increased taxes due to loss of exemption and gift splitting

What are the 5 life insurance considerations for a nonworking or under employed spouse


  • don't overlook estate planning
  • consider revocable trusts as beneficiary
  • consider using life insurance as the unified credit bypass vehicle
  • remember the life insurance estate may put these clients in a taxable situation

what are the considerations for life insurance planning for younger or medium sized estates


  • primary or contingent beneficiary
  • unfunded where permissible
  • additional dispositive flexibilty

what 3 things need to be considered when using a revocable trust as beneficiary