Advanced Marketing Forum Question

Naming a Trust as a Beneficiary

Question:
My Client wants to purchase a life insurance on her son-in-law to protect her daughter and grandson, yet my client wants her private family trust to be merely beneficiary of the life insurance. The daughter and grandson are beneficiaries within the family trust. Can this be done and what are the estate and income tax ramifications?

Reply:
If, at the time of the insured's death, your client is the owner of the policy and her son-in-law is the insured AND the beneficiary is a trust, the Goodman Rule is triggered. Three-party situations such as you describe cause the IRS to view the proceeds received by the beneficiary (the Trust) as a taxable gift from the owner. (Goodman v. Comm'r, 156 F.2d 218). Why? Because the owner of the policy is viewed as being able to, at any time, change the beneficiary herself.

Jane Warner, Esq.
Director, Advanced Planning
Sun Life Financial
Phone: 800-432-1102

* The foregoing is for broker/agent use only, and is intended solely for informational purposes. Nothing contained herein should be construed as legal or tax advice, and should not be relied upon for such. Legal and tax advice should only be obtained from your attorney or qualified tax professional.

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