Thomas, Sr. owned a $1,000,000 life insurance policy on his life. Thomas, Sr. transferred the policy...

Thomas, Sr. owned a $1,000,000 life insurance policy on his life. Thomas, Sr. transferred the policy to Thomas, Jr. in 2017 when the cash surrender value was $100,000. In 2018, Thomas, Jr. named his son Thomas III as beneficiary. When Thomas, Sr. died in 2019, his grandson, Thomas III collected $1,000,000. Which of the following is correct?

Thomas, Jr. made a $1,000,000 gift to Thomas III.

The value of the life insurance policy will not be included in Thomas, Sr.'s taxable estate.

The value of the life insurance policy will be included in Thomas, Sr.'s gross estate at $100,000

. Thomas, Sr. made a $1,000,000 gift to Thomas, Jr.

Expert Solution

Ans: the value of the life insurance policy will be included in Thomas, Sr.'s gross estate at $100,000

Reason:

If you own a policy on your life, you may want to transfer ownership to another individual (e.g., to the beneficiary) to avoid inclusion of the proceeds in your estate. Transferring ownership of a policy is easy: Simply complete a change-of-ownership form provided by your insurance company. Remember, though, that even if you transfer ownership of an existing policy to another individual, it may be included in your estate if you die within three years of the transfer. In addition, gifting a life insurance policy may subject you to gift taxes as well.

ekkarill92 answered 2 years ago

Pico Simons has a life insurance policy on his own life with Assurance Life Insurance. In...

Pico Simons has a life insurance policy on his own life with Assurance Life Insurance. In the event of his death, his sister Amber will receive all of the proceeds. Which of the follow is true? Select one: a. Assurance Life is the promisor, Pico is the promisee and Amber is the third-party donee beneficiary. b. Pico is the delegor, Assurance Life is the delegee, and Amber is the obligee c. Pico is the promisor, Assurance Life is the promisee...

Alfred owned a term life insurance policy at the time he was diagnosed as having a...

Alfred owned a term life insurance policy at the time he was diagnosed as having a terminal illness. After paying $76,700 in premiums, he sold the policy to a company that is authorized by the state of South Carolina to purchase such policies. The company paid Alfred $536,900. When Alfred died 18 months later, the company collected the face amount of the policy, $644,280. Alfred is required to include ______in his gross income as a result of the sale of...

1.Last year Robert transferred a life insurance policy worth $42,750 to an irrevocable trust with directions...

1.Last year Robert transferred a life insurance policy worth $42,750 to an irrevocable trust with directions to distribute the corpus of the trust to his grandson, Danny, upon his graduation from college, or to Danny’s estate upon his death. Robert paid $14,250 of gift tax on the transfer of the policy. Early this year, Robert died and the insurance company paid $380,000 to the trust. What amount, if any, is included in Robert’s gross estate? 2. Angelina gave a parcel...

Five years ago, Jason purchased a $400,000 life insurance policy on his life. For each of...

Five years ago, Jason purchased a $400,000 life insurance policy on his life. For each of the following, indicate how much of the $400,000 policy proceeds are included in his gross estate. a) The proceeds are payable to his estate. b) The proceeds were paid to his daughter, but Jason retained the right to change beneficiaries. c) $100,000 of the proceeds are used to pay debts of his estate with the balance paid to his daughter. Jason retained no rights...

Brad made his wife, Jennifer, an irrevocable beneficiary for his life insurance policy. After their divorce,...

Brad made his wife, Jennifer, an irrevocable beneficiary for his life insurance policy. After their divorce, Brad wants to make his new wife, Angelina, his beneficiary. What is the best way to do this? A. Simply tell the insurance company he is exercising his power as owner of the policy to change the beneficiary. B. If he can obtain Jennifer's consent, then he can change the beneficiary. C. He has to get a brand new policy since Jennifer is the...

1. Jim Harvey, your client, owns a life insurance policy on his own life. He has...

1. Jim Harvey, your client, owns a life insurance policy on his own life. He has paid $6,500 in premiums, and the cash surrender value of the policy is $25,000. Jim Harvey borrowed $25,000 from the insurance company, using the cash surrender value as collateral. He is considering canceling the policy in payment of the loan. Jim Harvey would like to know the federal income tax consequences of canceling his insurance policy. Discuss the tax implications. 2. As we know,...

1.When Steve died, his wife Linda was the sole beneficiary of his $50,000 life insurance policy....

1.When Steve died, his wife Linda was the sole beneficiary of his $50,000 life insurance policy. How will the $50,000 life insurance proceeds affect Linda’s gross income? 2.For tax purposes in 2018, A&P had operating income of $375,000 and operating expenses of $128,000. Included in A&P’s expenses is $22,000 for bad debts write-offs during 2018. In January of 2019, they received $7,000 from an account that was written off as a bad debt in 2018. What effect does this collection...

Prudent policy life insurance co. offers a 10 year term life insurance policy with a $250000...

Prudent policy life insurance co. offers a 10 year term life insurance policy with a $250000 benefit and annual premiums of $200, paid at the beginning of each year. If prudent can earn 8% on invested capital, what is the present value to the firm of the premiums from one policy, assuming the policy holder outlives the policy term?

A life insurance trust is often named the beneficiary of a life insurance policy it holds...

A life insurance trust is often named the beneficiary of a life insurance policy it holds for which of the following reasons? a. It can provide greater flexibility than is available under insurance settlement options b. It can eliminate a second estate tax upon the death of the beneficiaries. c. It can incorporate special limitations and restrictions on the funds designed to be paid to specific beneficiaries. d. All of the above

Montgomery was covered under a group life insurance policy and his ex-wife was the beneficiary. When...

Montgomery was covered under a group life insurance policy and his ex-wife was the beneficiary. When he remarried, Michael designated his new wife, Cynthia, as the beneficiary, and she mailed the form to Aetna. When Michael died, Cynthia Claimed the benefits, but Aetna denied the claim, stating it did not have the change of beneficiary form in its files. cynthia argued that when she mailed the form a presumption was raised that Aetna had received the form. Is she correct?...

Question