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Susie T 6:32 pm on September 4, 2010
Probably not. Minors can’t own property except in a trust, which would have to be irrevocable (can’t be changed) to get it out of your taxable estate. They can own property IN TRUST FOR THEM through UTMA or UGMA (Uniform Trust for Minors Account) but I’m sure life insurance can’t be put into an UTMA or UGMA trust. They were intended for bank accounts, real estate, and securities.
Even if you were able to transfer the policy, the amount of transfer for gift tax purposes would be the face amount of the policy, not the cash value.
To avoid incidents of ownership, transfer it to your wife, a parent or a sibling. But the current exemption is going to $1M in 2011, and probably $3.5M if Congress gets moving. How much life insurance do you have?
If it’s a lot, you can transfer it to a life insurance trust (ILIT), but again, you lose all control over it. You also have to pay a lawyer to draw up the trust document.
Mike 6:32 pm on September 4, 2010
talk to your insurance agent of the company that issued the policy as to how to get the changes made that you need to do. As far as tax consequences, the "gift rules" may apply. You may give a gift of $ 10,000 to any person in a year without having tax consequences. If the amount of the policy exceeds $ 10,000, there may be a tax due.
Clarifinancial.com 6:32 pm on September 4, 2010
Sure, having children own a life insurance policy is one alternative to creating an irrevocable life insurance trust (ILIT). It may be an issue that he is a minor. If it is okay that he own the policy, you might still be looking at a healthy gift tax situation, especially if you pay it up before you transfer it. You really need to talk with your lawyer and possibly your accountant too. They might have some better ideas.
I’m sure you’ve also thought about this, but it’s worth noting that as the owner, he has complete control over the policy. As a teenager and young adult, this may lead to some interesting situations.
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