Insurance, Estate Planning (Part 8)

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Estate Planning Considerations

Estate Planning Resolutions for 2023

Since key employees may require substantial amounts of life insurance protection, the estate planning implications should also be discussed. Key employees may wish to transfer the incidents of ownership of their group term life plan to another family member, in order to prevent its inclusion in their gross estates. R.R. 69-54 provides the details that the IRS requires for such a transfer to occur. Basically, the insured person must give up all incidents of ownership, excluding any conversion privilege (R.R. 84-130).

Note:

The holiday season soon will have come and gone, and many of us will be glad to begin turning the page on the unprecedented year that was 2020.

In retrospect, it is easy to focus on the negative aspects of a year that brought greater public health challenges, political divisiveness, and economic uncertainty than almost any year in recent memory.  But hopefully, these low points have come with a silver lining: a renewed focus on what is really important to us.

If there ever was a time to make meaningful New Year’s resolutions with an emphasis on the future and wellbeing of ourselves and our families, perhaps it is now.  Instead of purchasing an online fitness membership or pretending that you will enjoy eating lettuce as your entree this year, let us resolve to secure our family’s future by planning for the unfortunate inevitabilities of incapacity and death.  There is no time like the present to evaluate the estate planning that we have (or have not) undertaken.

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Policy Assignments

Assuming that state law does not prohibit such assignments, the group policy and individual certificates should delete the usual prohibition against assignment clauses. Thus far, the courts have not required that state law affirmatively permit such transfers, as long as there is no specific prohibition against them (Estate of Max J. Gorby, 53 T.C. no. 12 (1969); Landorf v. the United States, 408 F.2d 461 (Ct. Cl. 1969)). It has also been held that if the state law and group policy do not prohibit an assignment, a contrary clause in the certificate will not be given effect (See Gorby, cited above).

However, an assignment prohibition in the group policy itself will be given effect (Estate of Sidney F. Bartlett, 54 T.C. no. 153 (1970)). Since the issuance of R.R. 69-54, most states have enacted legislation expressly permitting the assignment of group life insurance. After the assignment of a group term life insurance certificate, the premiums are generally paid as before (i.e. either entirely by the employer, or on a contributory basis with the employee).

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Review Questions

Under NASBA-AICPA self-study standards, self-study sponsors are required to present review questions intermittently throughout each self-study course. The following questions are designed to meet those requirements and increase the benefit of the materials. However, they do not have to be completed to receive any credit you may be seeking with regard to the text.

Nevertheless, they may help you to prepare for any final exam. 6-13 Short explanations for both correct and incorrect answers are given after the list of questions. We recommend that you answer each of the following questions and then compare your answers. For more detailed explanations and references, you may do an electronic search using Ctrl+F (if you are viewing this course on a computer), consult the text Index, or review the general Glossary. 59. Section 79 provides eight requirements for qualifying group term life insurance. What is one of these requirements?

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a. Full coverage can apply to employees and their spouses.

b. The type of protection must not be temporary.

c. Coverage must include disability insurance.

d. A table determines the cost for excess benefits.

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60. Section 79 defines “key employee” for purpose of group term insurance. Who may qualify as a key employee under this definition?

a. A plan participant who is an officer and is paid less than 100% of the contribution limit under §415(c)(1)(A).

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b. A plan participant is one of twenty employees who possess minor interests in the employer.

c. A plan participant who possesses less than a 5% interest in the stock of the corporate employer.

d. A plan participant who owns over 1% interest in the stock of the noncorporate employer, and is paid at least $150,000 in annual compensation. 61. Which type of employees must be considered in determining whether a §79 group term life insurance plan is discriminatory?

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a. certain non-resident aliens.

b. employees who have less than three years of service.

c. key employees.

d. part-time or seasonal employees.

62. An extension of a group term insurance plan is a retired life reserve fund. Under Revenue Ruling 68-577, what requirement must a company meet in order to be able to deduct the premiums of such a plan?

a. The company must allocate the expected costs of funding the plan over the working life of each employee.

b. The company must be able to use some of the funds to pay group term insurance premiums during the employee’s lifetime.

c. The plan assures that insurance benefits will be paid.

d. A level of monthly payments that are actuarially determined must be made to the fund.

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