Can you transfer life insurance policies

For example, if two shareholders in a closely held business take out life insurance policies on themselves and name each other as beneficiaries to form a buy-sell agreement , then the recipient of the death benefit proceeds from the policy of the partner who dies first will face a substantial tax bill under the transfer-for-value rule.

The rule applies here because the two partners presumably agreed to name each other as beneficiaries, thereby introducing the receipt of consideration into the equation. Speculators have transferred life insurance policies between parties to take advantage of the tax-free death benefit it confers, thereby reaping tax-free windfalls. Congress in the Tax Reform Act declared that any life insurance policy that is transferred for any kind of material consideration may become partially or fully taxable when the death benefit is paid.

Association of International Certified Professional Accountants. Lloyd Wilson Associates. Life Insurance. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights.

Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Creating an ILIT where your chosen trustee is required to follow your instructions concerning use of trust assets can prevent this.

A trustee will be responsible for paying premiums and is more likely to keep the policy in force than would a child or children when called upon to write a check for the premium. Fourth, when insurance is transferred to individuals the beneficiaries usually receive the proceeds as an outright distribution at your death. Your family would lose all of the distribution protections that exist when life insurance is transferred to an ILIT. These protections include the following:.

Another IRS regulation provides that a deceased person who kept any "incidents of ownership" of a transferred life insurance policy is still considered the owner. The term "incidents of ownership" is simply legalese for significant power over the transferred insurance policy. Specifically, the proceeds of the policy will be included in your taxable estate if you have the legal right to do any one of the following:. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site.

The attorney listings on this site are paid attorney advertising. In some states, the information on this website may be considered a lawyer referral service. Please reference the Terms of Use and the Supplemental Terms for specific information related to your state. Grow Your Legal Practice. Meet the Editors. If you don't own your life insurance policy, it's not part of your taxable estate. Talk to a Lawyer Need a lawyer? Start here. Practice Area Please select Zip Code.

How it Works Briefly tell us about your case Provide your contact information Choose attorneys to contact you.