Tax Facts

148 / Can a grantor create an irrevocable funded life insurance trust, carrying insurance on the grantor’s spouse, without being taxed on trust income used for premium payments?

No.

The grantor is taxed on trust income used for the payment of insurance premiums on the life of the grantor or the grantor’s spouse. If the insurance is on the life of someone other than the grantor or the grantor’s spouse, however, this provision does not apply. Thus, a grandmother can fund a trust carrying insurance on the life of her son in favor of her grandchildren without being taxed on the trust income under IRC Section 677(a)(3).

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