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Member
 
Group: Forum Members
Last Login: 5/2/2011 5:21:23 PM
Posts: 13,
Visits: 92
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| I have a client that is 91 and we are trying to put his financial house in order. At spouse's death there was no 706 filed, the community assets were around $2.5M (pieced together from going through home office files). No funding of trusts, etc. Now we are playing catch-up. There are 6 life insurance policies naming daughter as bene, and 1 policy naming deceased spouse. The owner and the insured are the surviving spouse. When working with the CFP, he suggested that we change the ownership of the policies to the daughter/beneficiary, in order to remove the assets from the estate, and just hope that the 3 year look back period is reached. Is this "done all the time". Is there some kind of reporting I would do? I will probably have many questions on the estate, trying to dig through the past. Thanks for the info.
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Did the deceased spouse leave a will? If so, what did it say?
John Jacobson
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Power Member
Group: Forum Members
Last Login: 3/12/2011 12:58:57 PM
Posts: 147,
Visits: 823
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| I have had clients transfer life insurance policies before. You will need to file a gift tax return. The FMV of the gift is the *interpolated terminal reserve* value which the insurance company must provide. For planning purposes, the FMV is approximately the cash value. Before making the gift you'll need to know if there is a policy loan. If you make a gift of a policy that is subject to a loan, you'll have a taxable sale if the loan balance exceeds the basis in the policy. Given all that, it is a fairly common occurence but the benefits evaporate if he doesn't live 3 years from the date of the transfer. Is he healthy?
Mary Kay Foss
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| He is currently in the hospital.......currently lives independently at home, this will change soon.
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The interpolated terminal reserve is usually just the lowest amount at which the policy will be valued for transfer purposes. Other factors could increase the value significantly higher.
The secondary market can help establish FMV, but when in doubt, hirer an appraiser who specializes in life insurance.
At age 91, and depending on health and the requirements to make further policy premiums, the value of that policy may be close to face value.
Nelson Handy
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| The 3 year rule would not apply to "sale" of policy. The sale though should be made to a "defective Grantor Trust" so as to avoid the "transfer for value" rule.
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