Can You Change The Owner Of A Life Insurance Policy

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How to Transfer a Life Insurance Policy to Someone Else

Life insurance provides peace of listen to your family members, but it can also mean a big taxation bill for your children or other heirs. If you already know that you're going to be subject to federal estate tax after you die, transferring your life insurance policy over to someone else can allow your beneficiaries to sidestep some of the cost. Below you'll find helpful information you demand to know near life insurance transfers. And if y'all're looking for additional expert assistance, utilise SmartAsset's financial advisor matching tool to pair up with a fiscal professional.

Find out now: How Much Life Insurance Do I Need?

Trust vs. Individual Transfer

There are two bones ways to remove a life insurance policy from your taxable estate. The get-go is to place it in an irrevocable trust. A trustee takes command of the program and makes sure premiums are paid and money is divided up co-ordinate to your wishes later you're gone.

The other option is to transfer buying of the money directly to someone else. The procedure is pretty straightforward and usually involves filling out assignment or transfer forms with your insurer. Once yous transfer the policy over, y'all no longer have whatever command over it and so yous can't change the beneficiaries or increase the coverage limit.

Yous might not want to transfer the policy to your spouse if you lot're trying to minimize your revenue enhancement liability. That'due south considering your husband or wife could eventually be subject to high manor taxes. The improve choice could be to transfer information technology to an adult child or another relative.

Related Commodity: What Is an Irrevocable Beneficiary?

IRS Rules for Transfers

In the eyes of the IRS, timing is everything when information technology comes to life insurance policy transfers. If you transfer a policy and die within three years of the transfer date, it'due south even so considered part of your estate for taxation purposes. If yous're concerned that your wellness might shorten your life bridge, it's a good idea to transfer the policy sooner rather than afterwards to avoid the potential taxation implications.

The IRS too has a stipulation about the "incidents of buying" which could make a transfer zip and void. Basically, if yous yet have whatsoever legal rights to the policy – such as the power to switch beneficiaries or infringe against the policy – you're still technically considered its owner. In that case, the estate tax would still utilize.

Don't Forget About Gift Taxes

Federal gift taxation applies any time you give someone money in excess of the almanac exclusion limit. As of 2015, you could gift up to $xiv,000 to someone without incurring the souvenir tax. If you transfer a cash value life insurance policy to someone and it's worth more than the exclusion limit, it's considered a taxable gift.

If the new owner of the policy is required to pay ongoing premiums to maintain it, you tin all the same gift them upwardly to $14,000 to cover the toll without a penalty. If you practise have to pay souvenir revenue enhancement on a transfer, information technology's generally much less than what you'd pay in estate taxes if you held onto the policy.

Do I Need Life Insurance?

Last Thoughts

When you lot've managed to build upwards a decent amount of wealth, you don't want to come across a big chunk of it get carried off by Uncle Sam. If done properly, transferring your life insurance policy tin proceed more than of your hard-earned coin in the hands of your loved ones. Don't hesitate to ask a professional person for help if yous have any questions. A matching tool like SmartAsset'due south can aid you find a person to piece of work with to meet your needs. Get-go you'll answer a serial of questions virtually your situation and goals. Then the program will narrow downwards your options from thousands of advisors to upward to iii registered investment advisors who suit your needs. Y'all tin then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows yous to find a good fit while the programme does much of the hard work for you.

Photo credit: ©iStock.com/SaferTim, ©iStock.com/Pgiam, ©iStock.com/Andy445

Rebecca Lake Rebecca Lake is a retirement, investing and manor planning expert who has been writing virtually personal finance for a decade. Her expertise in the finance niche besides extends to habitation ownership, credit cards, cyberbanking and small concern. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.Due south. News and Globe Report, CreditCards.com and Investopedia. Rebecca is a graduate of the Academy of South Carolina and she besides attended Charleston Southern University as a graduate student. Originally from cardinal Virginia, she now lives on the North Carolina coast along with her 2 children.

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