Question
Simon owns a whole life insurance policy on his own life, with a death benefit of $3 million. In March 2020, Simon transfers the policy
Simon owns a whole life insurance policy on his own life, with a death benefit of $3 million. In March 2020, Simon transfers the policy to an unfunded irrevocable life insurance trust (ILIT) with a Crummey provision for the withdrawal of the annual exclusion amount. Simon's daughter, Roxanne, is the sole beneficiary of the trust. Each year, Simon gifts $12,000 to the ILIT to pay the policy premiums. Simon dies in 2022. Which of the following statements regarding the tax consequences of this scenario is (are) CORRECT?
1. Roxanne makes a taxable gift every year her withdrawal right lapses.
2. The $3 million death benefit will be included in Simon's probate estate.
3. Simon made a gift when he transferred the policy to the ILIT.
4. Simon's gifts of $12,000 each year to pay the policy premiums are eligible for the gift tax annual exclusion.
A. | 1 and 2 |
B. | 3 and 4 |
C. | 2, 3, and 4 |
D. | 4 only |
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