Third-Party Policy Ownership

When a third-party arrangement is used for estate planning purposes, the owner of the life insurance policy is usually:

- an Irrevocable life insurance trust -an adult child of the insured

Stranger-owned life insurance known as

-STOLI -Invester owned life insurance -IOLO

Third Party Ownership

A policy owned by a person other than the insured

Why people do Investor owned life insurance

The investor pays the insured a lump-sum payment and names itself as the new beneficiary. The lump-sum payment is generally more than the cash value and less than the policy face amount. The investor pays the future premiums needed to keep the policy active while the insured is alive

For third-party ownership to be valid, there must be an

insurable interest

In third-party ownership policies, who has all the rights in the policy

the owner, not the insured

when can death benefits under a third-party arrangement not be subjected to federal estate taxes?

when the insured's estate is not the policy beneficiary

life settlement agreement

when the policy owner assigns the policy to an investor after the policy's two year contestability period

Bring-Back Rule

When an insured transfers his or her life insurance policy to a third party and dies within three years after the transfer, at which time the policy death benefits are included in the insured's estate for tax purposes

Stranger-owned life insurance

a large policy acquired by a group of investors with the specific intention of selling the policy in the secondary life insurance market and ultimately making a substantial profit when the insured dies

Key employee Life Insurance

insurance on the life of a key employee to cover the possibility of an income loss and/or an increase in expenses resulting from the key employee's death