Answered: Lamar owns a whole life insurance…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Lamar owns a whole life insurance policy in which he is the insured and his children are the primary beneficiaries. In five more years, the policy will be paid up. Lamar would like to minimize the transfer tax on this asset for both his and his wife's estates. He also would like to avoid any income taxation under the grantor trust rules.

Which one of the following estate planning techniques would best achieve Lamar's goals?

Assigning both the policy and income-producing assets to a funded irrevocable trust either immediately or five years from now; earnings from the trust assets could be used by the trustee to pay the premiums

Waiting until the policy is paid up in five years and then transferring ownership of the policy to an unfunded irrevocable life insurance trust

Immediately transferring ownership of the policy to a revocable life insurance trust and gifting the annual premiums to the trustee

Immediately assigning the policy to an unfunded irrevocable life insurance trust with Crummey powers and gifting annual premiums to the trustee

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