[WSBAPT] Ownership/Premium Payment of Term Life Insurance in Testamentary Trust

[Diane J. Kiepe]

Eric - there is a lot going on here and it would be easier to discuss if you still haven't found your answer. I'd be happy to set up a chat time.

Let me know via direct e-mail if you are still seeking thoughts.

Best,

Diane J. Kiepe

Diane J. Kiepe
Douglas Eden
717 W. Sprague Ave.
Suite 1500
Spokane, WA  99201
djkiepe at depdslaw.com<mailto:djkiepe at depdslaw.com>
509-455-5300

From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Eric Nelsen
Sent: Friday, July 31, 2020 4:13 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] Ownership/Premium Payment of Term Life Insurance in Testamentary Trust

EP peoples, I have a new one that I'm hoping to get an opinion or two on.

Client (A) owns and pays premiums on several term life insurance policies on children's and grandchildren's lives, and (B) pays premiums on other term life insurance policies that she originally bought for grandchildren but has transferred ownership to them when they turned 18. She wants to continue this practice after death, and also preserve the beneficiary designations on policies she owns.

To be clear: In category (A), the owner of the policy is the client, the insured life is a child or grandchild of the client, and the client designated specific beneficiaries. In category (B), the owner of the policy is a child or grandchild, the insured life is that same child or grandchild, and the child or grandchild designates the beneficiaries but client pays the premiums. No life insurance pays at the client's death; these are all policies that will still exist after the client dies, and premiums will need to be paid, and somebody needs to be designated as owner who will be able to control beneficiary designation.

My first thought is to set up a testamentary trust under the Will, and direct that the policies that the client owns be transferred into it, along with a chunk of cash; then the trustee would be directed to use the cash to pay all insurance premiums (the premiums both on policies owned by the trust and on the policies owned by the grandchildren), and also ensure that the designated beneficiaries on the trust-owned policies are as the testator wants.

Does this work? Will an insurance company allow a policy to be owned by a trust, and allow the trustee to designate beneficiaries? Or do I need to contact the individual insurance companies to figure it out?

What about tax issues? Given the size of the client's estate I think there may be a Washington Estate Tax issue, but not a federal tax issue. My preliminary research indicates that valuation of a life insurance policy on another person's life can be convoluted; my head is swimming with ITR and PERC valuation methods and Rev. Proc. 2005-25.

Any thoughts or recommended resources for more research are greatly appreciated. Thank you!

Sincerely,

Eric

Eric C. Nelsen
Sayre Law Offices, PLLC
1417 31st Ave South
Seattle WA 98144-3909
206-625-0092
eric at sayrelawoffices.com<mailto:eric at sayrelawoffices.com>

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