Use Of Life Insurance In Estate Planning - Sample Questions 1 - 4

1. All of the following would indicate an incidence of ownership in a life insurance policy EXCEPT:

A) You pay the premiums.
B)
You borrow against the policy.
C)
You cannot change the beneficiary.
D) You transferred ownership within the last three years.

2. Which of the following is TRUE concerning the income, estate and gift taxation of life insurance proceeds and ownership?

A) Life insurance proceeds are included in the gross estate of the decedent if they owned the policy.
B)
Transfer of life insurance ownership with no cash value triggers a gift tax above $13,000.
C)
Life insurance proceeds are state income tax-free, but taxed at the federal income tax level.
D) Life insurance transfers within the first two years of the policy can be brought back into the estate of the original owner if they die.

3. Irrevocable life insurance trusts (ILITs) are effective estate planning tools for which of the following reasons:

I. Life insurance ownership is changed to the trust and removed from the grantors estate.
II. Proceeds still remain federal income tax-free for the beneficiary.
III. The trust can be amended over time to reflect life changes.
IV. The trust is creditor protected.

A) I and II only
B)
II and III only
C)
III and IV only
D)
I, II and IV only
E) All of the above

4. All of the following are prudent reasons to include life insurance in an estate plan EXCEPT:

A) Income replacement for a family member.
B)
Tax deduction for insurance payments.
C)
Help cover the cost of estate taxes for your heirs.
D) Pay off your mortgage at death.
 

Answer Key


Related Articles
  1. Financial Advisors

    Why the Wealthy Should Buy Lots of Life Insurance

    Wealthy clients have an enviable problem — managing, preserving and growing wealth. Properly structured life insurance can help with these goals.
  2. Retirement

    3 Methods to use Life Insurance as an Investment During Retirement

    Find out whether life insurance may be a smart investment after you retire, and why it really depends on what you are trying to accomplish.
  3. Insurance

    3 Reasons to Avoid Term Insurance

    Find out the reasons why term life insurance may not be for everybody, and why you may want to avoid it in favor of a permanent life insurance policy.
  4. 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.
  5. Retirement

    Does Life Insurance Make Sense When You Retire?

    Whether you need life insurance in your retirement depends on your existing insurance and your goals for passing on your wealth.
  6. 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?
  7. 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 ...
  8. Financial Advisors

    Tips for Helping Clients with Life Insurance Needs

    Life insurance needs will likely change over the client’s lifetime and again financial advisers can provide an objective sounding board.
  9. Retirement

    Life Insurance After Retirement: Do You Need It?

    The answer depends on your sources of income, how much debt you carry and whether you have dependents who rely on you financially.
  10. 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.
RELATED TERMS
  1. Insurance Trust

    An irrevocable trust set up with a life insurance policy as the ...
  2. Life Insurance

    A protection against the loss of income that would result if ...
  3. Key Person Insurance

    A life insurance policy that a company purchases on a key executive's ...
  4. Insurance Proceeds

    The benefit proceeds paid out by any type of insurance policy ...
  5. Universal Life Insurance

    A type of flexible permanent life insurance offering the low-cost ...
  6. Wholesale Life Insurance

    A type of employer-sponsored protection against the loss of income ...
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 are life insurance proceeds taxed?

  3. How much are the taxes on a $10,000 life insurance policy?

    The owner of the policy is deceased.  ... Read Answer >>
  4. What is the difference between term and universal life insurance?

    Term life insurance is the most basic of insurance policies. It is nothing more than an insurance policy that provides protection ... Read Answer >>
  5. Can your life insurance company sue you?

    Find out when life insurance companies have the right to recover claims. Learn about the most common reasons why a life insurance ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  3. Labor Market

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

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  5. 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 ...
  6. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center