Kenny is considering transferring his life insurance policy to an ILIT. Which of
ID: 2797329 • Letter: K
Question
Kenny is considering transferring his life insurance policy to an ILIT. Which of the following statements is true?
A) If Kenny included a clause that said, “Kenny can change the beneficiary of the trust at any time to any person other than himself” then the assets would be excluded from Kenny’s gross estate when he died.
B) If the trust requires the trustee to lend money to the Kenny’s estate at Kenny’s death, then the proceeds of the life insurance policy will be included in Kenny’s gross estate.
C) If Kenny continues to pay the trustee an amount needed to pay the premiums on the policy, the proceeds will be included in his gross estate when he dies.
Explanation / Answer
Answer: B)
As per the IRS regulation to transferring the policy: Kenny is considering transferring his life insurance policy to an ILIT to have the ownership and control over the policy with the clause If the trust requires the trustee to lend money to the Kenny’s estate at Kenny’s death, then the proceeds of the life insurance policy will be included in Kenny’s gross estate however he must be established the trust three years before his death. If Kenny included a clause that said, “Kenny can change the beneficiary of the trust at any time to any person other than himself”. After transfer the policy, he will no longer the policy owner and the policy benefits will not be included in your estate and there may not be anyone to trust to have ownership and control of the policy or Kenny may not want to continues to pay the trustee an amount needed to pay the premiums on the policy and kenny has to set up the trust that policy will continued by payment of the premuim amounts with this condition to be included in the trust before he dies.
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