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Posted by robert.moredock@gmail.com on July 18, 2007, 5:11 am
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An investment adviser with a national brokerage has proposed
that my 87 year old mother "invest" about $750K from my
deceased fathers credit balance trust to purchase a life
insurance contract on her life so as to leave the heirs "tax
free" proceeds in the form of the pay out on that policy on
her demise.
What are the pros and cons of such a plan? I know what I
think, but am seeking input from those of you who may have a
better grasp of something like this.
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Posted by Paul Thomas, CPA on July 19, 2007, 10:32 pm
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> An investment adviser with a national brokerage has proposed
> that my 87 year old mother "invest" about $750K from my
> deceased fathers credit balance trust to purchase a life
> insurance contract on her life so as to leave the heirs "tax
> free" proceeds in the form of the pay out on that policy on
> her demise.
>
> What are the pros and cons of such a plan? I know what I
> think, but am seeking input from those of you who may have a
> better grasp of something like this.
The fact is that mom will pass one day and the heirs will
inherit the $750K (+/- investment gains or losses).
Does mom need that $750K to cover living expenses now or in
the future?
But it's a decision to not be taken lightly, or with the
advise of strangers from the internet.
Talk to other family advisors, your lawyer, your accountant,
etc and so on about the pros and cons. Those advisors know
your family situation better than anyone else does.
--
Paul A. Thomas, CPA
Athens, Georgia
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
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Posted by tonkknot on July 19, 2007, 10:32 pm
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> An investment adviser with a national brokerage has proposed
> that my 87 year old mother "invest" about $750K from my
> deceased fathers credit balance trust to purchase a life
> insurance contract on her life so as to leave the heirs "tax
> free" proceeds in the form of the pay out on that policy on
> her demise. What are the pros and cons of such a plan?
In the nature of, The Answers Ain't Just A Trivial Details:
What exactly do you mean by a "credit balance trust" other
than "trust" and, in any event, if your mother is the
present beneficiary, is there a remainder beneficiary and,
if so, who?
Presuming that you refer to a trust authorizing invasion of
principal for the support and maintenance of your mother as
lifetime beneficiary, how does such language authorize the
trustee to make the withdrawal and payment and purchase for
what you appear to suggest would be a purpose other than for
her support and maintenance?
In other words, if more generally, what provisions of that
trust authorize the withdrawal and purchase you and the
investment advisor contemplate?
To what if any extent has your mother invaded/used her
federal lifetime Unified Tax Credit?
Assuming "not at all" is the answer to the previous
question, if your mother were to die in or before 2008, will
she probably leave an estate with a value of more than
$2-million and, if so, by approximately how much and, if she
were not to die until 2011 or later and if congress has not
by then amended present federal estate tax laws, to what if
any extent will she leave an estate with a value of more
than $1-million?
If you are suggesting that the financial advisor is saying
that he has confirmed that $750,000 will be needed for the
premium costs for such a policy and that he has also
verified that a life insurance policy is purchasable at all
on the life of an 87 year old woman, what will be the amount
of the benefit payable on death?
What will be the probable estate tax impact on your mother's
and, if different, the existing trust's other beneficiaries
by reason of your mother's death if the contemplated life
insurance policy were not purchased?
What make you apparently believe that one intelligently and
reliably can evaluate the pros and cons of the financial
adviser's suggestion without the information you do not yet
provide that answers the questions above?
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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<< Copyright (2006) - All rights reserved. >>
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Posted by Harlan Lunsford on July 19, 2007, 10:32 pm
Please log in for more thread options robert.moredock@gmail.com wrote:
> An investment adviser with a national brokerage has proposed
> that my 87 year old mother "invest" about $750K from my
> deceased fathers credit balance trust to purchase a life
> insurance contract on her life so as to leave the heirs "tax
> free" proceeds in the form of the pay out on that policy on
> her demise.
>
> What are the pros and cons of such a plan? I know what I
> think, but am seeking input from those of you who may have a
> better grasp of something like this.
GoodGodAlmighty!
And, prey tell, what would be the first three years'
premiums on such a policy and what would be the face amount?
If the face amount might be so high as to come into her
estate, what would the estate tax be?
ChEAr$,
Harlan Lunsford, EA n LA
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Stuart Bronstein on July 19, 2007, 10:32 pm
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> An investment adviser with a national brokerage has proposed
> that my 87 year old mother "invest" about $750K from my
> deceased fathers credit balance trust to purchase a life
> insurance contract on her life so as to leave the heirs "tax
> free" proceeds in the form of the pay out on that policy on
> her demise.
>
> What are the pros and cons of such a plan? I know what I
> think, but am seeking input from those of you who may have a
> better grasp of something like this.
First of all it depends on the size of your mother's taxable
estate. The funds should come from your mother's trust, not
your father's. If your mother's estate (not including what's
in your father's trust) will be $1,000,000 or more after
payment, it could be a good deal. [If the money comes from
your father's trust, there shouldn't be any tax on those
funds when your mother dies anyway, so any benefit would
likely be negligible.]
The reason is that your mother would be getting that money
out of her estate, thereby reducing future estate tax by
about $340,000 or more. Then the death benefit will be
received free of income tax.
The death benefit can also be free of estate tax, but only
if the policy is owned by an irrevocable trust or by her
beneficiaries. If it is considered in any way owned by her,
it's all included in her taxable estate for estate tax
purposes, wasting the whole process.
One thing I don't know off the top of my head, but it
disturbs me a bit, is that the policy will be paid for by a
lump sum premium rather than in periodic payments that
qualify for the annual gift tax exclusion. She may need to
live three years before the payment qualifies as out of her
estate. Or she may never get the payment out of her estate,
which would eliminate a huge amount of the benefit of doing
the transaction.
For the amount of money you are talking about, you should
have the investment advisor sit down with both a CPA and a
tax lawyer to go over the details and make sure the policy
will do what is represented.
Stu
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
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