Tax Planning 3- Tax Implications of Trusts and Estates

Question 1

True or False
Trusts and estates are separate, fiduciary entities for income tax purposes.

Answer 1

True

Question 2

What is the rule that determines the amount and character of the income a trust or estate retains or distributes

Answer 2

Distributable Net Income (DNI) =
Taxable Income - Capital Gains + Tax Exemption

Question 3

What are the various disciplines and authorities that impact the operation and taxation of a fiduciary entity?

Answer 3

(1) Contract law
(2) The governing documents;
(3) Federal income tax law;
(4) State income tax law;
(5) Accounting theory; and
(6) Probate law

Question 4

The terms “irrevocable” or “revocable” refer to…

Answer 4

the grantor’s continued control over the
assets.

Question 5

The grantor permanently transfers assets to the trust and releases all dominion and control over them- excluded from the gross estate

Answer 5

irrevocable

Question 6

Allow the grantor continued control over the transferred assets- includible in the gross estate

Answer 6

revocable

Question 7

Terms that refer to the income tax treatment of the entity and determine who bears the burden of paying the income taxes generated from the taxable income earned on the assets in the trust

Answer 7

grantor trust
and
non-grantor trust

Question 8

Trust where the grantor is treated as the owner of the assets for income tax purposes and is responsible for the payment of taxes

Answer 8

Grantor trust

Question 9

Trust where the grantor is treated as a
separate tax-paying entity and the fiduciary is responsible for the payment of taxes.

Answer 9

Nongrantor trust

Question 10

Are revocable trusts often grantor trusts or non-grantor trusts?

Answer 10

Grantor trusts

Question 11

Are nonrevocable trusts often grantor trusts or non-grantor trusts?

Answer 11

Non-Grantor trusts

Question 12

A type of trust allowed in a small number of states where a person that creates the trust is also the beneficiary of the trust

Answer 12

Self-settled trusts
Types of self-settled trust are spendthrift trust and Domestic Asset Protection Trusts

Question 13

True or False
A Self Settled Trust is a trust created by an individual to shield the individual’s own assets from creditors while allowing the individual to retain some level of interest in, or benefit from, the transferred assets.

Answer 13

True

Question 14

An irrevocable trust that allows the grantor to also be a beneficiary of the trust.

Answer 14

Self Settled Trust also known as domestic asset protection trusts, self-designated trusts, or spendthrift self-settled trusts, a

Answer 15

Domestic Asset Protection Trusts

Question 16

A financial instrument used in estate planning to minimize taxes on large financial gifts to family members. Under these plans, an irrevocable trust is created for a certain period of time. Assets are placed under the trust and then an annuity is paid out to the grantor every year. When the trust expires and the last annuity payment is made, the beneficiary receives the assets and pays little or no gift taxes.

Answer 16

Definition of a GRAT

Question 17

Assets are placed under the trust and then an annuity is paid out to the grantor every year. When creating a GRAT, a grantor contributes assets in trust but retains a right to receive ____________________ the ____________ of the assets contributed to the trust while earning a rate of return specified by the IRS __________________.

Answer 17

When creating a GRAT, a grantor contributes assets in trust but retains a right to receive (over the term of the GRAT) the original value of the assets contributed to the trust while earning a rate of return specified by the IRS (known as the 7520 rate).

Question 18

A grantor trust is considered a ____________ for income tax purposes. Therefore, any taxable income or deduction earned by the trust will be taxed on the ___________. In most cases, there will not even be a requirement to file a trust income tax return, as the income of the trust assets can be reported with your social security number.

Answer 18

A grantor trust is considered a disregarded entity for income tax purposes. Therefore, any taxable income or deduction earned by the trust will be taxed on the grantor’s tax return. In most cases, there will not even be a requirement to file a trust income tax return, as the income of the trust assets can be reported with your social security number.

Question 19

Grantor-retained annuity trusts (GRATs) are estate planning instruments in which a grantor ___________ from which they earn ___________.

Answer 19

Grantor-retained annuity trusts (GRATs) are estate planning instruments in which a grantor locks assets in a trust from which they earn annual income.

Question 20

Upon expiry, ____________ receives the assets with minimal or no ______________.

Answer 20

Upon expiry, the beneficiary receives the assets with minimal or no gift tax liability.

Question 21

GRATs are used by wealthy individuals to minimize ______________.

Answer 21

GRATs are used by wealthy individuals to minimize estate and gift tax liabilities.

Question 22

What is the estate tax risk when establishing a GRAT because it is a bet-to-live strategy?

Answer 22

Under a GRAT, the annuity payments come from interest earned on the assets underlying the trust or as a percentage of the total value of the assets. If the individual who establishes the trust dies before the trust expires the assets become part of the taxable estate of the individual, and the beneficiary receives nothing, making the GRAT useless.

Question 23

fir a GRIT, once the _________ during which the grantor is eligible to receive income from the trust expires, one of two things can happen. First, the _________ in the trust can be distributed to its ______________.

If you don’t want the trust assets to pass on to beneficiaries right away, the other option is to ____________________. Beneficiaries can still receive assets from the trust, though it would happen _______________. The ________could decide when _____________would be eligible to receive assets. For example, they may have to reach a _______________, or the transfer may not happen until the grantor ________________.

Answer 23

Once the initial term during which the grantor is eligible to receive income from the trust expires, one of two things can happen. First, the remaining assets in the trust can be distributed to its beneficiaries.

If you don’t want the trust assets to pass on to beneficiaries right away, the other option is to continue to hold those assets in trust. Beneficiaries can still receive assets from the trust, though it would happen at a later date. The grantor could decide when beneficiaries would be eligible to receive assets. For example, they may have to reach a certain age first, or the transfer may not happen until the grantor passes away.

Question 24

When assets are transferred to a GRIT, they’re valued at a ____________. This discount depends on _______________ for which you plan to draw income from the trust as the grantor. The ________the specified term is, the greater the retained income interest, which____________ the taxable gift to the beneficiaries at the end.

Answer 24

When assets are transferred to a GRIT, they’re valued at a discount. This discount depends on the number of years for which you plan to draw income from the trust as the grantor. The longer the specified term is, the greater the retained income interest, which lowers the taxable gift to the beneficiaries at the end.

Question 25

Who cannot be a GRIT Beneficiary?

Answer 25

Spouse Parents or spouse’s parents Children or spouse’s children Siblings or spouse’s siblings (or their spouses) inlaws spouses

Question 26

Who can be a GRIT Beneficiary?

Answer 26

children of your siblings (nieces and nephews) or other distant relatives as the beneficiary to a GRIT

Question 27

Who cannot be a GRIT Beneficiary?

Answer 27

Spouse Parents or spouse’s parents Children or spouse’s children Siblings or spouse’s siblings (or their spouses) inlaws pouses

Question 28

A grantor-retained income trust allows the _______________ to transfer assets to it while still being able to receive _______ from trust assets. The grantor maintains this right for a ________________.

Answer 28

A grantor-retained income trust allows the person who creates the trust to transfer assets to it while still being able to receive net income from trust assets. The grantor maintains this right for a fixed number of years.

Question 29

When creating a GRUT, a grantor contributes assets in trust but retains a right to receive (over the term of the GRUT) based on the ________________ of the assets.

Answer 29

When creating a GRUT, a grantor contributes assets in trust but retains a right to receive (over the term of the GRUT) the annual valuation of the trust asset. Similar to GRAT but payment is based on annual trust valuation not an original contribution.

Question 30

A ____________ is a long-term trust created to pass wealth from generation to generation without incurring transfer taxes, such as estate and gift taxes. They are often used by very wealthy families to take advantage of the generation-skipping tax exemption of $12.92 million (in 2023).

Answer 30

Dynastic Trusts

Question 31

Assets in a dynasty trust are held under the control of a trustee that the ________designates.

Answer 31

Assets in a dynasty trust are held under the control of a trustee that the grantor designates.

Question 32

In order to act as a dynasty trust, the trust must ____ _______ ______—meaning _________ that heirs or beneficiaries take cannot be so large as to ___________________. If the trust is not depleted by the _________, and state law does not otherwise limit the duration of the trust, then, at least theoretically, a dynasty trust could last ________. They are often used by very wealthy families to take advantage of the generation-skipping tax exemption of _______million (in 2023).

Answer 32

In order to act as a dynasty trust, the trust must be kept "alive"—meaning withdrawals that heirs or beneficiaries take cannot be so large as to deplete the account. If the trust is not depleted by the beneficiaries, and state law does not otherwise limit the duration of the trust, then, at least theoretically, a dynasty trust could last forever. They are often used by very wealthy families to take advantage of the generation-skipping tax exemption of $12.92 million (in 2023).

Question 33

Given the ____________________duration that is characteristic of a dynasty trust, an ___________________trustee (e.g., a financial services company or bank) is generally best suited to perform that role.

Answer 33

Given the multi-generational duration that is characteristic of a dynasty trust, an institutional trustee (e.g., a financial services company or bank) is generally best suited to perform that role.

Question 34

Given the ____________________duration that is characteristic of a dynasty trust, an ___________________trustee (e.g., a financial services company or bank) is generally best suited to perform that role.

Answer 34

Given the multi-generational duration that is characteristic of a dynasty trust, an institutional trustee (e.g., a financial services company or bank) is generally best suited to perform that role.

Question 35

For income tax purposes, note that a dynasty trust can be set up as either a ______ trust or as a _____________trust.

Answer 35

For income tax purposes, note that a dynasty trust can be set up as either a grantor trust or as a non-grantor trust.

Question 36

While there may be some limitations, the grantor of a dynasty trust generally has a wide degree of_________in specifying when funds ____________ ___________from the trust and by whom.

Answer 36

While there may be some limitations, the grantor of a dynasty trust generally has a wide degree of latitude in specifying when funds are removed from the trust and by whom.

Question 37

On the other hand, grantors should know that beneficiaries will not have the flexibility to alter the terms of the trust—even if their family or financial circumstances change in the future—which is something to consider before setting up a dynasty trust.

Answer 37

On the other hand, grantors should know that beneficiaries will not have the flexibility to alter the terms of the trust—even if their family or financial circumstances change in the future—which is something to consider before setting up a dynasty trust.

Question 38

Some states have adopted the "____ ___ _______," which undermines the usefulness of dynasty trusts by limiting their duration. Your attorney can help you understand any applicable laws in your state.

Answer 38

Some states have adopted the "rule against perpetuities," which undermines the usefulness of dynasty trusts by limiting their duration. Your attorney can help you understand any applicable laws in your state.

Answer 39

Charitable Remainder Trusts

Answer 40

Charitable Lead Trusts

Answer 41

Spend thrift trusts

Question 42

A joint trust created by a married couple for the purpose of minimizing estate taxes. It is formed with each spouse placing assets in the trust and naming as the final beneficiary any suitable person except the other spouse.

Answer 42

Marital A/B Trusts

Question 43

An A-B trust is a joint trust created by a married couple; upon one spouse's death, the trust splits into a survivor portion (the A trust) and a bypass portion (the decedent's trust, or B trust).

Answer 43

An A-B trust is a joint trust created by a married couple; upon one spouse's death, the trust splits into a survivor portion (the A trust) and a bypass portion (the decedent's trust, or B trust).

Question 44

An __________ gets its name from the fact that it splits into _______ separate entities when one spouse dies. Trust A is the ______ trust and trust B is the ________trust.

Answer 44

An A-B trust gets its name from the fact that it splits into two separate entities when one spouse dies. Trust A is the survivor's trust and trust B is the decedent's trust.

Question 45

What is the survivor portion of an A-B trust?

Answer 45

A Trust

Question 46

What is the survivor portion of an A-B trust?

Answer 46

B Trust

Question 47

Why is an A-B trust split into two separate entities at the death of the first spouse?

Answer 47

To effectively minimize the estate tax by utilizing the estate tax exemption of the irrevocable bypass trust decedent and not wasting it because of the unlimited marital deduction. The surviving spouse has limited control over the decedent's trust but the terms of the decedent's trust can be set to allow the surviving spouse to access the assets, and even draw income from them.

Question 48

Are A-B Trust widely used?

Answer 48

To effectively minimize the estate tax by utilizing the estate tax exemption of the decedent and not wasting it because of the unlimited marital deduction. The surviving spouse has limited control over the decedent's trust but the terms of the decedent's trust can be set to allow the surviving spouse to access the assets, and even draw income from them.

Question 49

What are the advantages of Bypass Trust?

Answer 49

Future growth will be exempt from estate taxes at first and second death of spouses Additional protection from surviving spouse's creditors Ensures assets will pass to children at the surviving spouse's death May allocate deceased spouses GST exemption to the bypass trust Any unused exemption s portable to surviving spouse

Question 50

Characteristics of Bypass Trust and appropriate limitation on access by surviving spouse

Answer 50

HEMS for Surviving spouse Independent trustees can distribute assets to an unascertainable standard A surviving spouse may be granted powers of appointment Descendants can be permissible beneficiaries during a surviving spouse's lifetime

Question 51

What are the disadvantages of Bypass Trust?

Answer 51

Assets do not receive a step-up when surviving spouse dies Trustees must file annual 1041 Complexities in funding and administrating Not optimal for certain assets like retirement plans

Question 52

A ___________ ______ ______ is a legally binding agreement in which assets are passed down to the grantor's grandchildren—or anyone at least 37½ years younger—bypassing the next generation of the grantor's children.

Answer 52

Generation Skipping Trusts

Question 53

By skipping the ________to receive the assets, the _________ of the grantor avoid the ________ taxes that would otherwise be due.

Answer 53

By skipping the opportunity to receive the assets, the children of the grantor avoid the estate taxes that would otherwise be due.

Question 54

Generation-skipping trusts are liable for _________________________if the amount transferred exceeds a certain ______ _______ ________($11.7 million in 2021).

Answer 54

Generation-skipping trusts are liable for taxation if the amount transferred exceeds a certain annually adjusted threshold ($11.7 million in 2021).

Question 55

Generation-skipping trusts are liable for _________________________if the amount transferred exceeds a certain ______ _______ ________($11.7 million in 2021).

Answer 55

Generation-skipping trusts are liable for taxation if the amount transferred exceeds a certain annually adjusted threshold ($11.7 million in 2021).

Question 56

Because a generation-skipping trust effectively transfers assets from the grantor's estate to ____________, the grantor's __________ never take title to the assets. This is what allows the grantor to avoid the estate taxes that would apply if the assets came into the possession of the _______ generation first.

Answer 56

Because a generation-skipping trust effectively transfers assets from the grantor's estate to _grand children__, the grantor's __children never take title to the assets. This is what allows the grantor to avoid the estate taxes that would apply if the assets came into the possession of the ___next____ generation first

Question 57

Though ___________________ are the most common beneficiaries, the recipient of a generation-skipping transfer doesn't necessarily have to be a _____ ______. The beneficiary can be anybody who is at least ______years younger than the _______ and not a spouse or ____________.

Answer 57

Though grandchildren are the most common beneficiaries, the recipient of a generation-skipping transfer doesn't necessarily have to be a family member. The beneficiary can be anybody who is at least 37½ years younger than the grantor and not a spouse or ex-spouse.

Question 58

A grantor-retained income trust allows the _______________ to transfer assets to it while still being able to receive _______ from trust assets. The grantor maintains this right for a ________________.

Answer 58

A grantor-retained income trust allows the person who creates the trust to transfer assets to it while still being able to receive net income from trust assets. The grantor maintains this right for a fixed number of years.

Question 59

For income tax purposes, note that a dynasty trust can be set up as either a ______ trust or as a _____________trust.

Answer 59

For income tax purposes, note that a dynasty trust can be set up as either a grantor trust or as a non-grantor trust.

Question 60

While there may be some limitations, the grantor of a dynasty trust generally has a wide degree of_________in specifying when funds ____________ ___________from the trust and by whom.

Answer 60

While there may be some limitations, the grantor of a dynasty trust generally has a wide degree of latitude in specifying when funds are removed from the trust and by whom.

Question 61

How Much Is the Generation-Skipping Transfer Tax?

Answer 61

The current rate, which has been in effect since 2014, is 40%; however, the Tax Cuts and Jobs Act dramatically lessened the estates that might be affected by it. Only the value of a person’s estate that is in excess of the applicable exemption is subject to an estate tax at death or the GSTT, at that flat rate of 40%. So only aggregate gifts and bequests to a skip person in excess of $12.06 million in 2022 ($12.92 million in 2023) would be subject to the 40% flat generation-skipping transfer tax.

Question 62

Who Pays the Generation-Skipping Transfer Tax?

Answer 62

The generation-skipping transfer tax is paid by either the grantor or the skipped beneficiary. The grantor pays the direct generation-skipping tax while an indirect generation-skipping tax is paid by the skipped beneficiary. The former is the most common scenario.

Question 63

There are _____types of skips: A direct skip happens when the transferor gifts assets ______to a skip _______, and they have immediate ownership rights. In an indirect skip, someone transfers money to an__________that may eventually distribute assets to a skip person.

Answer 63

There are two types of skips: Direct skip. A direct skip happens when the transferor gifts assets directly to a skip person, and they have immediate ownership rights. Indirect skip. In an indirect skip, someone transfers money to an entity (such as a trust) that may eventually distribute assets to a skip person.

Question 64

A skip person refers to a family member that someone gifts or bequests assets to, that is that is____ ___ _____ generations younger than them.

Answer 64

A skip person refers to a family member that someone gifts or bequests assets to, that is two or more gene

Question 65

____ ____ ______ ________ allow individuals to ensure the benefits from a life insurance policy can avoid estate taxes and follow the interests of insured. ________ must be irrevocable, meaning the insured cannot change or undue the trust after its creation.

Answer 65

Irrevocable life insurance trusts (ILIT) allow individuals to ensure the benefits from a life insurance policy can avoid estate taxes and follow the interests of insured. ILITs must be irrevocable, meaning the insured cannot change or undue the trust after its creation.

Question 66

The ILIT has its own ___ ___ ____number and must file annual _____ ____ ______, although it usually has no taxable income while you are alive. When you die, the ______which owns the policy and collects the ____ _____“lives on,” so to speak, so the death benefits are not taxed.

Answer 66

The ILIT has its own federal tax identification number and must file annual state and federal income tax returns, although it usually has no taxable income while you are alive. When you die, the entity which owns the policy and collects the death benefit “lives on,” so to speak, so the death benefits are not taxed.

Question 67

Most ILITs do not have taxable income and therefore do not require an _____ _____ ______. In terms of gift tax reporting, if you transferred an existing life insurance policy to the ILIT, a gift tax return ____ _____ _______to inform the IRS of the transfer (gift) of the life insurance policy to the ILIT.

Answer 67

Most ILITs do not have taxable income and therefore do not require an income tax return. In terms of gift tax reporting, if you transferred an existing life insurance policy to the ILIT, a gift tax return may be required to inform the IRS of the transfer (gift) of the life insurance policy to the ILIT.Oct

Question 68

The_________ ____ _____ provides that you must outlive any "gratuitous" transfer of your property ____ ___ ____ ____ ____ to avoid it being included in the value of your estate for estate tax purposes. This rule commonly comes into play when life insurance policies are transferred into the name of an irrevocable trust after the policyholder dies.

Answer 68

The three-year rule provides that you must outlive any "gratuitous" transfer of your property by at least three years to avoid it being included in the value of your estate for estate tax purposes. This rule commonly comes into play when life insurance policies are transferred into the name of an irrevocable trust after the policyholder dies.

Question 69

An irrevocable trust sets up a continuous way for the benefactor to make charitable contributions without having to manually issue monthly payments and provides a guaranteed income stream for the charitable beneficiary.

Answer 69

Charitable Lead

Question 70

In this case the grantor, or person who donates to the trust, remains the owner of the funds. This allows the grantor to take an immediate tax deduction for all future payments to the charity, using their fair market value at the time of the donation, although there are deduction limitations based on whether the trust is benefitting a public charity or private foundation. However, the trust’s investment earnings are taxable to the grantor for the life of the trust, so they should make sure that this doesn’t unduly diminish the tax deduction.

Answer 70

Grantor Charitable Lead Trust

Question 71

Non-Grantor Trusts - In this case the ______owns the funds, not the ________, making the grantor ineligible for an immediate tax deduction and requiring the trust to pay tax on the investment income. However, the _________ may take a tax deduction for the distribution of funds to __________________, with no limits on the _______. It is this structure that is more suited to ____________ transfer taxes.

Answer 71

Non-Grantor Trusts - In this case the trust owns the funds, not the grantor, making the grantor ineligible for an immediate tax deduction and requiring the trust to pay tax on the investment income. However, the trust may take a tax deduction for the distribution of funds to the charitable beneficiary, with no limits on the deduction. It is this structure that is more suited to minimizing transfer taxes.

Question 72

A charitable lead trust, unlike a charitable ___________ ______, is not income_____ _______. Rather, the nongrantor lead trust is taxed as a ___________ ________.

Answer 72

A charitable lead trust, unlike a charitable remainder trust, is not income tax-exempt. Rather, the nongrantor lead trust is taxed as a complex trust.

Question 73

A charitable lead trust may be either a non-__________ or a ____ _____.

Answer 73

A charitable lead trust may be either a non-grantor or a grantor trust.

Question 74

With a _________, or family, charitable lead trust, the trust is _________ and must file Form 1041 each year.

Answer 74

With a non-grantor, or family, lead trust, the trust is taxable and must file Form 1041 each year.

Question 75

________ lead trust will cause all income and capital gain to be recognized on the ________ Form 1040.

Answer 75

Grantor lead trust will cause all income and capital gain to be recognized on the donor's Form 1040.

Question 76

The CLAT is its own taxpayer but can claim a charitable deduction each year for payments made to the ______ _______ that year. As long as the CLAT income in a given year does not _______ the payments made to Lead Beneficiary in that year, the CLAT ___ ____owe income taxes.

Answer 76

The CLAT is its own taxpayer but can claim a charitable deduction each year for payments made to the Lead Beneficiary that year. As long as the CLAT income in a given year does not exceed the payments made to Lead Beneficiary in that year, the CLAT will not owe income taxes.

Question 77

A _______ CLAT can generate a charitable income tax deduction for the _______ _______of the income stream going to the charity. The ______must, however, pay an income tax on all the CLAT's income during the _____ ____ _____ (including the amount paid to the charity)

Answer 77

A grantor CLAT can generate a charitable income tax deduction for the present value of the income stream going to the charity. The donor must, however, pay an income tax on all the CLAT's income during the initial interest period (including the amount paid to the charity)

Question 78

Can a CRT have multiple beneficiaries?

Answer 78

A CRUT may have multiple or successive beneficiaries. The trust can provide income to a married couple or to a group of siblings — and to their heirs.

Question 79

What is the 10% rule of a CRT?

Answer 79

Each contribution to the trust must equal at least 10% of the fair market value of property as of the date it is contributed to the trust.

Question 80

Are there any disadvantages for the use of the charitable remainder trusts?

Answer 80

The CRT is irrevocable, meaning that with very few exceptions, it cannot be changed once it is created. It usually requires a donation of substantial assets to make sense. Legally, you no longer have control of the assets in the trust.

Question 81

CHARITABLE REMAINDER TRUST ADVANTAGES

Answer 81

You will receive a partial tax deduction for the assets you donate. No capital gains taxes are paid when the donated assets are sold. Donated assets are no longer part of your estate. You can receive an income stream from the reinvested proceeds of the CRT. You can decide which charities will receive the assets of the CRT upon termination.

Question 82

CHARITABLE REMAINDER TRUST DISADVANTAGES

Answer 82

The CRT is irrevocable, meaning that with very few exceptions, it cannot be changed once it is created. It usually requires a donation of substantial assets to make sense. Legally, you no longer have control of the assets in the trust. Any part of your estate that goes into the CRT will go to the charitable organization of your choice, and not to your heirs. However, in some cases, they or the grantor may still receive income from donated assets. Distributions from the CRT to the income beneficiaries might be taxable as ordinary income. Depending on the amount of assets donated, you may not be able to take the full tax deduction in the same year as the donation. However, it can be spread out over a five-year period.

Question 83

____________ Payout - A fixed amount must be paid out to charity annually, with that amount determined by a stated percentage of the initial value of the trust’s principal. In this structure investment performance is not taken into account and the payment amount never varies.

Answer 83

Annuity Payout - A fixed amount must be paid out to charity annually, with that amount determined by a stated percentage of the initial value of the trust’s principal. In this structure, investment performance is not taken into account and the payment amount never varies.

Question 84

_________ Payout - The trust’s principal is revalued annually, and the payments are determined using the same percentage of that value each year. This results in variable annual payment amounts.

Answer 84

Unitrust Payout - The trust’s principal is revalued annually, and the payments are determined using the same percentage of that value each year. This results in variable annual payment amounts.

Question 85

What is the survivor portion of an A-B trust?

Answer 85

B Trust

Question 86

The ILIT has its own ___ ___ ____number and must file annual _____ ____ ______, although it usually has no taxable income while you are alive. When you die, the ______which owns the policy and collects the ____ _____“lives on,” so to speak, so the death benefits are not taxed.

Answer 86

The ILIT has its own federal tax identification number and must file annual state and federal income tax returns, although it usually has no taxable income while you are alive. When you die, the entity which owns the policy and collects the death benefit “lives on,” so to speak, so the death benefits are not taxed.