Use Of Life Insurance In Estate Planning - Answer Key

1. C

Acts of ownership in a life insurance policy allows the owner to make modifications, beneficiary changes, borrow from the policy and pay premiums. Ownership transfers within three years will still be included in the decedent's estate if they pass away.

2.
A

If the decedent owns a life insurance policy (or transferred one out of their name within the last three years), then the proceeds are included in the gross estate of the decedent. Beneficiaries receive the proceeds federal income tax–free, and there is no gift tax triggered when ownership changes names unless cash values have accumulated in the policy.

3.
D

An ILIT is an irrevocable trust, so after it is drafted changes cannot be made.

4.
B

No tax deduction is given for premium payments on individual policies. Introduction


Related Articles
  1. Personal Finance

    7 Reasons To Own Life Insurance in an Irrevocable Trust

    An Irrevocable Life Insurance Trust helps minimize estate and gift taxes, provides creditor protection and protects government benefits.
  2. Life Insurance

    What life insurance is: A contract with an insurance company that provides your beneficiaries with a certain amount of money when you die. Pros: Beneficiaries are safeguarded from the financial ...
  3. Insurance

    How Private Split-dollar Life Insurance Works

    Understand how a private split-dollar life insurance plan can help leverage gifts and reduce estate taxes.
  4. Financial Advisors

    How Life Insurance Can Help Reduce Estate Taxes

    Inheritance is a double-edged sword, as leaving money can create estate tax burdens. Opting for a life insurance plan can help mitigate those burdens.
  5. Retirement

    Life Insurance: How To Get the Most Out Of Your Policy

    There are many benefits to owning a life insurance policy - if you get the right one for you.
  6. Taxes

    Understanding The Insurance Transfer-For-Value Rule

    If you are banking on your life insurance payout being tax-free, you may be in for a surprise.
  7. Insurance

    Use Life Insurance to Help Those With a Disability

    Why and how to use permanent life insurance to help provide for a family member with a disability or special needs
  8. Personal Finance

    How Survivorship Life Insurance Works

    Should you buy a survivorship life insurance policy?
  9. Wealth Management

    Why Own Life Insurance in a Qualified Retirement Plan?

    What are the pros and cons of owning cash value life insurance in a qualified retirement plan?
  10. Investing Basics

    Life Estate vs Irrevocable Trust: Which is Better?

    People considering application for Medicaid can put their biggest asset - their home - in a trust that splits ownership of the property.
RELATED TERMS
  1. Insurance Trust

    An irrevocable trust set up with a life insurance policy as the ...
  2. Income In Respect Of A Decedent ...

    Money that was due to a decedent and will pass through to the ...
  3. Decedent (IRD) Deduction

    The decedent or IRD deduction stands for Income in Respect of ...
  4. Decedent

    A person who is no longer living. Just as a taxpayer's possessions ...
  5. Form 706: United States Estate ...

    A tax form distributed by the Internal Revenue Service (IRS) ...
  6. Incidents Of Ownership

    Any interests or rights that an individual maintains in an asset, ...
RELATED FAQS
  1. How do I list the beneficiaries of my life insurance policies if I have a trust? ...

    Because most states protect life insurance policies from creditors, most buyer questions come from the confusion created ... Read Answer >>
  2. How can I reduce the taxes on my inherited retirement assets?

    Many beneficiaries miss out on one of the most significant tax deductions for inherited retirement-plan assets; the income ... Read Answer >>
  3. When is it a good idea to use an irrevocable life insurance trust?

    The irrevocable life insurance trust or "ILIT" is a trust that cannot be rescinded, amended or modified in any way after ... Read Answer >>
  4. Do beneficiaries pay taxes on life insurance?

    Learn how life insurance proceeds are generally not taxable to the beneficiary, but understand the unique situations in which ... Read Answer >>
  5. What are the restrictions for naming a given individual as my contingent beneficiary?

    Understand what restrictions may exist, depending on your state and the policy you choose, on naming your life insurance ... Read Answer >>
  6. What is the difference between the death benefit and cash value of an insurance policy?

    Understand the difference between the various components of a life insurance policy including the death benefit and a policy's ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center