'Private' split-dollar provides transfer tax savings
Article Abstract:
The IRS issued a letter ruling endorsing a private split-dollar arrangement. Basically, two parties in a split-dollar insurance plan agree to buy a life insurance policy on the life of one of the two parties, both of whom share in the premium costs, cash values and death benefits. Usually reserved for executive compensation, this arrangement can also be used in non-employment settings, in which case it is referred to as a private split-dollar plan. IRS Letter Ruling 9745019 holds that such a plan can also be used to achieve transfer tax savings. This ruling involved a couple who opened an irrevocable trust for their children and financed it with a cash gift used to buy a second-to-die life insurance policy. They created a split-dollar arrangement for future funding of the policy premiums. The IRS ruled that no 'incidents of ownership' in the policy existed for the taxpayers that would make the proceeds taxable in the gross estate of the second to die.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1998
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Using Crummey powers in trusts for annual giving
Article Abstract:
The Crummey power allows donees to withdraw a gift for a certain period of time, which usually lasts 30 days. This authority can be used to ensure that the gift qualifies as annual exclusion under Sec. 2503(b). Technically, the power of withdrawal is a general power of appointment, which can be applied for decedents, their estates or creditors, or creditors of the estates. Beneficiaries should be given an effective notice of the right of withdrawal within an acceptable timeframe, at least four days before the withdrawal. Tax professionals should understand the implications when Crummey powers in insurance trusts lapse. They should also educate themselves about the use of hanging powers, powers of appointment, and claiming of unified credits of the beneficiaries. These should help them deal properly with the issues related to the Crummey power.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1997
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Life insurance trusts offer tax savings and liquidity
Article Abstract:
Irrevocable life insurance trusts can be allocated as owner and beneficiary of insurance policies in order to shield proceeds from being subjected to estate, gift and generation-skipping transfer (GST) taxes when both the insured party and the beneficiary die. To accomplish this, it must be guaranteed that gifts to the trust is eligible for the yearly gift exclusion. It should also be ensured that the GST exemption is designated to the transfers. Crummey powers can be employed in achieving these requirements. However, the powers must be structured such that the possibility that a lapsed demand rights will return all or a significant percentage of the trust into the estate of first-generation beneficiaries is attenuated.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1993
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