In a recent Trusts and Estates blog post Melvin A. Warshaw (Financial Architects Partners) says “antiquated gift tax regulations create ambiguity in valuing certain types of newer policies that are sold today.” One example is in the case of gift taxes. Warshaw explains:
The estate and gift tax regulations indicate that the value of a policy is based on the cost of a hypothetical “comparable contract.” For newly issued policies, the value is the cost of the policy (that is, premiums paid). For one-time, single premium policies that are “paid up,” the value is the carrier’s current cost for an identical policy. For policies in force for some time on which additional premiums are due, the regulations say that the FMV of the policy can be “approximated” by using the ITR [interpolated terminal reserve] amount plus unearned premiums unless this method isn’t reasonably close to full value (for example, the insured is terminally ill).
“ITR is at the heart of the current dilemma on how to value policies,” says Warshaw. Find out more by reading his article “Life Insurance Policy Valuation.”
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