Lawyer can help plan your estate

By KENT A. COLLINS

Q.I am trying to do some estate tax planning. How is it that I can have a life insurance policy with my son as beneficiary, but he pays no tax on it when I die? --- D.M.

A. Hire a lawyer or accountant to assist you with estate tax planning. Here are the basics:

For illustration purposes, let us say you have a life insurance policy on yourself for $100,000. Your son is beneficiary, but you are the owner of this asset, and thus your estate will pay taxes on the payout at your death.

To avoid the taxes, give the policy to your son. If he is the owner of the life insurance on you, no tax event is triggered by your death. The policy isn't your asset and not included in your estate at death.

Giving this $100,000 life insurance policy on your death to your son could be a taxable gift. But, the value of the policy --- ask that tax accountant --- is probably less than the $10,000 gift tax ceiling. If not, you and your spouse can give the policy to your son, thus lifting the ceiling before gift tax is due to $20,000.

The tax accountant probably will advise that your son pay the premiums once you give the policy to him. That will strengthen the argument that the son owns the policy. Of course, you can give your son monetary gifts to pay the premiums.

One other provision to discuss with your lawyer or tax accountant: You probably have to live three years beyond the date of your gift to escape the estate taxes on the policy payout.

Los Angeles Times Syndicate

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