100 words and reference 

First student- masaki

1. Discuss the use of an ILIT to receive an existing life insurance policy that insured the life of the donor and how that/ technique can result in the exclusion of the life insurance policy from the donor's federal gross estate.

The ILIT is a venue by which people can create a life insurance policy; the main goal of this type of policy is to avoid death taxes on proceeds (Leimberg, 2017). Additionally those who use this policy are usually called on to make gifts to the trust in order to cover their annual premiums (Leimberg, 2017). As long as these gifts are below the annual gift maximum then they are open to exclusion on their taxes. 

2. Discuss the features of a life insurance policy, including the incidents of ownership of a policy, how policies are assigned, how dividends are paid on policies, and what types of rider benefits can be optional features.

There are many features that come with different life insurance policies, one of these is the basic rights that a policyholder holds. These include the right to name and change beneficiaries, the right to cash, and the right to receive dividends (Leimberg, 2017). Policy holders have the right to receive cash dividends based on the favourable performance of the company(Leimberg, 2017) Rider benefits that are included in these policies are benefits such as being able to take a loan against the Policy.

3. Review the gift and estate tax deductions for charitable contributions to a qualified charitable organisation.

The Gift and estate tax deduction rules are dictated by the internal revenue code. If a company is in line with this code then deductions may be made for any charitable giving (Leimberg, 2017). Additionally, individuals who are 70.5 years old are allowed to make tax free donations from their retirement accounts. 

References:

Leimberg, S. R. (2017). Tools & Techniques of Estate Planning, 18th Edition. The National Underwriter Company.

Second student Evan 

An irrevocable life insurance trust (ILIT) is a tool to be used to keep life insurance proceeds from being included in an estate for estate tax consideration (Leiberg, 2017, ch. 32). Life insurance benefits from policies owned by the insured are generally received tax-free by the beneficiaries. However, the amount is still included in the total for determining an estate tax after the owner passes. Setting up an irrevocable trust to hold the policy places the death benefit outside the estate.

ILITs can receive an existing policy as a gift. To do so, the trust should be established in line with the grantor’s estate planning goals and should give the trustee authority to maintain the life insurance policy (Leimberg, 2017, ch. 32). The grantor may then irrevocably assign the policy to the trustee of the trust (Leimberg, 2017, ch. 32). The policy’s future premium can either be paid with income producing assets also held in the trust or by future gifts. If premiums are paid by gift, the trustee must make sure the trust meets the requirements for Crummey withdrawal power (Leimberg, 2017, ch. 32).

2.

At its most basic level, a life insurance policy indemnifies the beneficiaries for the value of the loss of life of the insured (Leimberg, 2017, ch. 31). While it is hard to fix a dollar amount on human life, the value for life insurance purposes is generally considered the total amount of potential future income lost because the insured has died. Some policy types, such as whole life and universal life, include a cash value component that accumulates over the life of the insured. This cash value can be used as a part of an estate plan in different ways.

One feature of life insurance is the incidents of ownership. These include the right to name and change beneficiaries, receive dividends, borrow against a policy’s cash value, make withdrawals, surrender the policy, and dispose of ownership rights (Leimberg, 2017, ch. 31).

In a mutual insurance company, policyowners are also part owners of the company itself. Profit that the company earns is returned to the policyowners as dividends, which can be received by the policyowners in various ways. They can accept as cash, reduce premiums, purchase paid-up insurance, put in an account to earn interest, purchase one-year term insurance, or pay down future premiums (Leimberg, 2017, ch. 31).

A third feature is the ability to add riders, which are extra options that provide different terms or benefits at the cost of a higher premium (Leimberg, 2017, ch. 31). One common rider, a disability rider, waives the premium for a period of time if the owner becomes disabled (Leimberg, 2017, ch. 31). Another useful rider is a guaranteed insurability rider, which allows a policyowner to purchase additional insurance in the future without evidence of insurability, such as a medical review (Leimberg, 2017, ch. 31).

3.

Gifts to qualified charities can be used to reduce a tax burden. Any gifts to qualified charities are not subject to gift taxes themselves, regardless of the amount, nor does the charity pay taxes on gifts received (Leimberg, 2017, ch. 33). Regarding gifts from estates, the amount of the estate tax deduction is equal to the full amount of the gift (Leimberg, 2016, ch. 33). This means that an entire estate can be given to charity and pay no taxes.

The rules for income tax deductions for gifts during the donor’s lifetime are somewhat more complicated and depend on the type of property being gifted. There is generally a limit based on a percentage of adjusted gross income, which can be 30% or 50% (Leimberg, 2017, ch. 33). The deduction amount can be either the full amount of the gift, the fair market value of the gift, or limited to the cost basis, also dependent on the type of property (Leimberg, 2017, ch. 33). In order to take an income tax deduction, the taxpayer must itemize their deductions.

Best regards, Evan Downey

References

Leimberg, S. R. (2017). Tools & Techniques of Estate Planning, 18th Edition. The National Underwriter Company.

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