February 2003

Estate Tax Complexities of Life Insurance Policy Ownership

By Ed Mendlowitz, CPA, Mendlowitz Weitsen LLP CPAs

This article illustrates the complexities of life insurance ownership as related to estate taxation.

In Exhibit 1, assume a decedent owned a $1 million life insurance policy with a former spouse as the beneficiary in the “without planning” example, whereas an irrevocable life insurance trust owns it in the “with planning” example. The object of the estate plan is for the current spouse to receive everything except for the credit shelter amount. It also assumes there are no state taxes and no other tax issues. Exhibit 1 uses the 2003 tax rates and exemption.

Exhibit 2 illustrates a case where the spouse owns the insurance and dies at the same time as the insured. The example assumes that all other assets were in the name of the insured.

Mitchell A. Drossman, JD, CPA
U.S. Trust Company of New York

Robert L. Ecker, JD, CPA
Ecker Loehr Ecker & Ecker LLP

Contributing Editors:
Peter Brizard, CPA

Jeffrey S. Gold, CPA
J.H. Cohn LLP

Ellen G. Gordon, CPA
Margolin Winer & Evens LLP

Jerome Landau, CPA

Harriet B. Salupsky, CPA

Debra M. Simon, MST, CPA

Richard H. Sonet, JD, CPA
Marks Paneth & Shron LLP

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