subject: Transfers of Life Insurance [print this page] Transfers of Life Insurance
TRANSFERS OF LIFE INSURANCE
In addition to these various methods for dealing with one's life insurance portfolio through one's business, the law now permits insurance policies to be bought and sold between a corporation and its stockholders and between partners and their partnership, without destroying the tax-free character of the ultimate insurance proceeds. This provides a new method for getting cash out of a corporation during one's lifetime.
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You can sell your personal insurance to your corporation. This will give you the cash value of that life insurance, and transfer the obligation for premium payment to the corporation, which now becomes both owner and beneficiary (key man insurance). The ultimate proceeds will go to the corporation, but the cash may be brought back to your family through a redemption of corporate stock. If the stock exceeds 35% of the gross estate or 50% of the net estate, this redemption will be income-tax-free, to the extent of estate taxes and other death costs. It can be seen from the foregoing that if you are a principal in your business, you are missing a good bet if you have not considered the variety of ways in which your business can be made legally and legitimately to serve your long-range objectives. If you are an employee, it becomes equally apparent that motivating your employer to undertake these programs can pay handsome dividends both to you and to himwithout any impairment of the corporate financial structure.
An important concern in estate planning is the division of ownership of property among various members of a family. Aside from the human considerations involved, the transfer of property during their lifetimes from older and wealthier members of the family to younger members will reduce the estate tax liability at death. If the younger members of the family who receive the property are in lower income tax brackets, these transfers will likewise reduce the aggregate family income tax bill.
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