In a dynasty trust, once life insurance proceeds are paid to a trust, beneficiar
ID: 2727731 • Letter: I
Question
In a dynasty trust, once life insurance proceeds are paid to a trust, beneficiaries receive discretionary income distributions with a limited power of appointment over trust corpus.
True
False
A credit shelter trust can be the beneficiary of a life insurance policy when an insured spouse dies.
True
False
Which statement regarding an ILIT is incorrect?
Insurance proceeds paid to the trust are protected from the claims of creditors, including the decedent’s creditors.
The trust cannot hold a survivorship policy when a husband and wife are co-insureds.
All incidents of ownership over a policy are held by the trustee.
An ILIT allows an insured to leverage annual exclusion gifts, his unified credit and his GST exemption by gifting a policy with a low current gift value in relation to the value at the insured’s death.
Hugh created an irrevocable trust five years ago and transferred a $4 million whole-life policy to the trust. His wife, Meryl, will receive the income for life, with the remainder payable to her estate. What is the consequence of this transfer?
Hugh and Meryl can offset the taxable amount of the premiums with gift-splitting and annual exclusions.
Assuming Meryl survives Hugh, only the trust’s remainder interest is includable in her estate.
When Hugh transferred the policy to the trust, he could not offset the gift tax with a marital deduction.
Hugh can borrow from the policy’s cash value without adverse tax consequences,
Insurance proceeds paid to the trust are protected from the claims of creditors, including the decedent’s creditors.
The trust cannot hold a survivorship policy when a husband and wife are co-insureds.
All incidents of ownership over a policy are held by the trustee.
An ILIT allows an insured to leverage annual exclusion gifts, his unified credit and his GST exemption by gifting a policy with a low current gift value in relation to the value at the insured’s death.
Hugh created an irrevocable trust five years ago and transferred a $4 million whole-life policy to the trust. His wife, Meryl, will receive the income for life, with the remainder payable to her estate. What is the consequence of this transfer?
Hugh and Meryl can offset the taxable amount of the premiums with gift-splitting and annual exclusions.
Assuming Meryl survives Hugh, only the trust’s remainder interest is includable in her estate.
When Hugh transferred the policy to the trust, he could not offset the gift tax with a marital deduction.
Hugh can borrow from the policy’s cash value without adverse tax consequences,
Explanation / Answer
Answer 1 FALSE 2 TRUE 3 Insurance proceeds paid to the trust are protected from the claims of creditors, including the decedent’s creditors. 4 Hugh and Meryl can offset the taxable amount of the premiums with gift-splitting and annual exclusions.
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