Schweser-Book1-Pg-269 “Assume Tax laws permit tax-free transfers of estate less than $500K. If the decedent leave a large estate, and assuming the spouse’s core capital is satisfied, $500K of the estate could be transferred immediately to his children” I though the strategy was to do tax free gift transfers between husband-wife (Spouse). So how is the 500K being transferred to the kid, tax free? The dots don’t seem to connect well here… Please help.
Part of the “Spousal exemptions” rules, gratuitous transfer tax exclusions apply to smaller estate, thus you can give a “small” amount to someone else tax free, so if the spouse has enough (for her lifetime), then instead of giving to her then she again will give it to children this time WITH TAX (since she will not manage to spend it up anyway) --> you pass it on directly to second generation, thus skipping the additional tax.
Thanks elcfa, makes sense. Also on using Life Insurance section “As the only asset transferred by the grantor (policy owner) are the premium paid, life insurance policies represent a very efficient means for transferring assets…” Usually life insurance premiums are paid to the policy issuing company for having provide the wealth to the ‘direct beneficiary’ in case of events like death/disability. How come here in this text they claim that the premiums are paid to the beneficiaries directly and hence tax free?
Last LOS on International Transparency it’s claimed that to maximize worldwide taxation on residents and citizens, countries sign treaties to share information and US demans that global banks (say for example UBS) to disclose the names of their clients who own US-securities. In response many global banks became Qualified Intermediaries to avoid disclosing names of ALL clients and only disclosing US-Customers in UBS bank holding US-Securities. That’s what the case was all about with UBS in 2009 and they never gave out any non-us customer information as that would cause their business model of client privacy and confidentiality to go for a toast.
> “As the only asset transferred by the grantor > (policy owner) are the premium paid, life > insurance policies represent a very efficient > means for transferring assets…” > > Usually life insurance premiums are paid to the > policy issuing company for having provide the > wealth to the ‘direct beneficiary’ in case of > events like death/disability. How come here in > this text they claim that the premiums are paid to > the beneficiaries directly and hence tax free? Not sure what your question is, but here how it works. Father pays annual premium to the insurance company. The savings part (i.e., not the term life) of the life insurance part accumulates tax-free at agreed interest rate (cash value). The insurance also states that the death benefits will go to the children at death. Once father dies, the death benefits go tax free to the children. This strategy is efficient because: - the death benefits are outside forced heirship and creditors. - not go through the probate process. - tax free - it can be used to pay the estate tax levered on the rest of the estate. There are other benefits of course.
Thanks bud. I am a bit confused with the saving-part and the term-life part
LaGrandeFinale Wrote: ------------------------------------------------------- > Thanks bud. I am a bit confused with the > saving-part and the term-life part Here is a brief overview. I do not claim to be an expert in this area, by any means. There are two types of life insurance: 1. pure life insurance, also called term life. - Annual premium. No cash value. - If you have a policy with death benefits of $1,000,000 --> your beneficiaries will be paid $1,000,000 (death benefits), if you have paid the premium for the year. It doesn’t matter how you die. - Employer contributions pay term insurance component while employee pays the saving part (see below). 2. Permanent Life Insurance: It is a combination of a term life insurance policy above and a “savings account”. Premium payments above the cost of insurance (term life) built up cash value with agreed interest rate. Under the umbrella of permanent life, you have different sub categories: e.g., ordinary/whole life: fix interest rate; universal life: flexibility in payment; Variable life: flexible rates,… Having built up this cash value will help reduce your annual premium (term life) over time, but you don’t get paid out this cash value at death. For some other types of insurance, you can choose to have both death benefits AND build-up cash value paid out to beneficiaries (so called option B). But it requires that you pay more in annual premium over time. At death, the death benefits will be paid (to the predesignated beneficiary). The death benefits are tax free (in most jurisdictions). The cash value (if you have option B) may be tax free, all dependent on tax jurisdictions.
Thanks for all the help elcfa.