Why is it better to have an irrevocable life insurance trust purchase alife insurance policy on the donor, rather than have the heirs themselves own a permanent life insurance policy with the premium paid by the heirs with gifts by the now- living donor?
(Ask the Money Panel, Sept. 13 and Oct. 25) When the donor dies, the result is the same with or without an irrevocable trust. D.W., Fairfield Answer: C. Daniel Payne, a chartered financial consultant and certified life underwriter with Northwestern Mutual Life Insurance Co. in Cincinnati, says that if the heirs are of legal age they can own life insurance on the donor and deal with the policy benefits and receive benefits. While the policy proceeds should be excluded from the taxable estate, there are some points to consider. The advanced planning attorneys from Northwestern’s home office think that the insurance would need to be apportioned among the heirs. For example, if there are four heirs and $500,000 of life insurance being considered, each heir should own a $125,000 policy. The donor could gift the premium to each policy owner (heir). Complication sets in if all four heirs own a single life insurance policy. If joint action (or ownership) is required to exercise ownership right
