Yes, if you and your spouse are subject to community property law, and an irrevocable trust owns insurance on your life. ?If, under the terms of the trust, your spouse is a beneficiary, there is a potential trap. ?The insurance premiums are generally funded by way of gifts from you to the trust. ?If the gift is made from community property, under state law, your spouse is deemed to have made half the gift, and will have made a transfer with a retained interest.
Excerpt from The Complete Guide to Estate and Financial Planning in Turbulent Times (Collaborative Press, 2011) - Walt Dallas, Contributing Author
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