2 rules make planning complicated if you already own life insurance
Abstract: As of mid-2010, the estate tax is still scheduled to return, so it remains important to keep life insurance out of one’s estate. But the tax code’s “three-year rule” can pull policy proceeds back into a transferor’s estate if he or she doesn’t survive for at least three years after the transfer. And an exception to this rule can trigger the “transfer-for-value rule,” which can cause the transferee to be subject to ordinary income taxes. But this article shows how one might avoid both rules through use of an irrevocable grantor trust.