By moving
ownership of the life insurance policy out of the insured's ownership and into the ownership of a trust, for instance, the value of the policy's proceeds will not be included in the insured's total estate — and he or she will therefore not owe taxes on this amount.
Based on this law, all situations where an employer will have full or
partial ownership of a life insurance policy issued after August 17, 2006, regardless of the purpose of the policy, will need to meet certain requirements and follow specific guidelines to avoid potential taxation.
If you are willing to transfer
ownership of a life insurance policy in your name over to the charity of your choice, and simultaneously name them the beneficiary, you would not only be eligible for a tax deduction now, but on future payments you make into the policy as premiums.
The selling policyowner receives an upfront cash payment in exchange for
transferring ownership of the life insurance policy — typically more than any existing cash value but less than the policy's full death benefit — and the investor as the new owner then continues to make the ongoing / annual premium payments.
In some cases, if you transfer
the ownership of your life insurance policy to another party before your death for monetary value or other consideration, the proceeds paid to the beneficiary at your death could be considered taxable income to that beneficiary.
In this case, however, it is important to keep in mind that you should keep
the ownership of the life insurance policy out of your personal name.
To get around this problem, many people assign
ownership of the life insurance policy to the ex-spouse beneficiary.
You can transfer
ownership of your life insurance policy to another person (including the beneficiary) or to an irrevocable life insurance trust.
Absolute Assignment: When you transfer
the ownership of a life insurance policy to someone else.
The preferred option for many is to transfer
ownership of the life insurance policy to an irrevocable trust.
In 1911, the U.S. Supreme Court issued a decision in Grigsby v. Russell, which recognized the rights of the life insurance policy owners to transfer
ownership of their life insurance policies to a third party that was unrelated to the policy owner / insured and did not hold an insurable interest in the policy owner / insured.
Overall,
ownership of life insurance policies is at a 50 - year low.
The ownership of the life insurance policy at the time of the demise of the insured, influences whether or not taxes will be levied on the policy benefits.
In an irrevocable life insurance trust, the insured transfers
ownership of a life insurance policy to a trust, which can act as a tax shelter for beneficiaries if the insured dies.
Converting a policy will transfer
the ownership of a life insurance policy to an entity that acts as a benefits administrator.
Obviously,
the ownership of life insurance policies is an important factor in how much estate tax is due.
Changing
the ownership of life insurance policies is an important estate planning technique.