Advanced Designs Pocket Guide Spousal Lifetime Access Trusts (SLATs) with Life Insurance AD-OC-795B
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Table of Contents Introduction 1 Exhibit A 4 Frequently Asked Questions 1. What are the features of a Spousal Lifetime Access Trust (SLAT)? 5 2. What is the difference between a SLAT and an Irrevocable Life Insurance Trust (ILIT)? 6 3. Who can serve as trustee of the SLAT? 7 4. Will the grantor spouse lose access to the life insurance policy s available cash value upon divorce or death of his or her spouse? 8 5. Why must the grantor spouse fund the SLAT with his or her separate property? 9 6. Can each spouse establish a SLAT for the other spouse? 9 7. Can a grantor spouse gift split with the non-grantor spouse if a SLAT is used? 10 8. What type of life insurance policy can a SLAT own? 10 9. How does a SLAT owning a second-to-die life insurance policy pay for the life insurance policy premiums upon the death of the grantor spouse? 11 10. Can a SLAT be created by an unmarried couple? 12 11. Can the trust be drafted to provide for future children? 12 12. Why would a couple need indirect access to a life insurance policy s cash value? 13 13. How can creating a SLAT address the current estate tax uncertainty? 13 Conclusion 14
Introduction A spousal lifetime access trust (SLAT) may be an ideal irrevocable life insurance trust (ILIT) for a young and wealthy married couple. This type of irrevocable trust may be particularly appropriate for young couples who are concerned about losing access to the life insurance policy s available cash value as well as estate inclusion. Specifically, SLATs are designed to keep life insurance death benefit proceeds outside of a couple s taxable estate while providing them with indirect access to the policy s available cash value. By way of example, let us assume that Greg and Tracy, both 42 years of age, are married with two young children, Sophia and Travis. Greg, a financial planner, recently inherited a beachfront home in Malibu worth about $3,000,000. Including the Malibu property, Greg and Tracy s net worth is about $10,000,000. Greg is familiar with the federal gift and estate tax system and realizes that, without proper planning, if he and Tracy die in 30 years, there may be more than $20,000,000 in estate taxes 1 due after both of them pass away! 2 Greg and Tracy decide to purchase life insurance to provide liquidity for their estates so that their children will not be forced to sell the Malibu home or their other property. The couple, however, has two main concerns. First, they want to make sure the life insurance policy s death benefit proceeds are excluded from their estates. Second, even though Greg and Tracy are willing to pay the life insurance premiums, they are concerned about control and want to retain access to the life insurance policy s available cash value in the event of an emergency. 1 According to the American Taxpayer Relief Act of 2012, the federal estate, gift and generation skipping transfer (GST) tax exemption amounts are all $5,000,000 (indexed for inflation effective for tax years after 2011); the maximum estate, gift and GST tax rates are 40%. As of January 1, 2013, the annual gift tax exclusion is $14,000 per donee (indexed for inflation). 2 This calculation assumes a six (6) percent annual growth rate on the property. Page 1 of 14
To address these two concerns, Greg and Tracy, with the help of their estate planning attorney, consider establishing an ILIT to own life insurance. While an ILIT, if set up properly, will address Greg s and Tracy s concern about estate inclusion, they discover that an ILIT does not address their concerns about access to the life insurance policy s available cash value. In other words, with a traditional ILIT, Greg and Tracy will not have access to the life insurance policy s available cash value if they need it. Thus, they opt instead to establish a SLAT to own the life insurance policy so they may retain indirect access to the life insurance policy s cash value. Greg names an appropriate trustee; 3 he also names his wife, Tracy, as the beneficiary of the SLAT during her lifetime and the children as the remainder beneficiaries. Greg, the grantor spouse, then transfers enough separate property to the SLAT so that the trustee may purchase a life insurance policy. This gift may be subject to gift taxes depending on Greg s use of his annual exclusion gifts and/or lifetime gift tax exemption amount. 4 The SLAT trustee uses Greg s gift to purchases a life insurance policy. The SLAT becomes the owner and beneficiary of the life insurance policy. The SLAT is drafted to include certain provisions that give the trustee the discretion to take loans and withdrawals from the life insurance policy s available cash value and to distribute them to Tracy, the non-grantor spouse, during Greg s lifetime. These loans and withdrawals may be income tax-free if within limits and up to basis. 5 Any policy withdrawals, loans and loan interest will reduce policy values and may reduce benefits. After Greg s death, the remaining assets in the trust should pass to the SLAT 3 The trustee appointed should not be the insured or the insured's life insurance producer. A life insurance producer who is paid a commission on the sale of a life insurance policy represents both his or her personal interest and the interests of the trust, creating a conflict of interest. 4 See footnote 1. 5 Tax-free income assumes, among other things: (1) withdrawals do not exceed tax basis (generally, premiums paid less prior withdrawals); (2) policy remains in force until death; (3) withdrawals taken during the first 15 policy years do not occur at the time of, or during the two years prior to, any reduction in benefits; and (4) the policy does not become a modified endowment contract. See IRC Secs. 72, 7702(f)(7)(B), 7702A. Page 2 of 14
beneficiaries, according to the terms of the SLAT, free of estate and income tax. 6 The SLAT provides Tracy with indirect access to the policy s available cash value, if necessary, at the trustee s discretion. Tracy may then utilize the unlimited marital deduction to give Greg the distributions free of gift tax. Additionally, even though Greg and Tracy have indirect access to the policy s available cash value, the trust s proceeds should pass to their children free from estate tax. Thus, the SLAT should address both of Greg s and Tracy s main concerns. Exhibit A illustrates this arrangement with a single life policy. 6 For federal income tax purposes, life insurance death benefits generally pay income taxfree to beneficiaries pursuant to IRC Sec. 101(a)(1). In certain situations, however, life insurance death benefits may be partially or wholly taxable. Situations include, but are not limited to: the transfer of a life insurance policy for valuable consideration unless the transfer qualifies for an exception under IRC Sec. 101(a)(2) (i.e., the transfer-for-value rule ); arrangements that lack an insurable interest based on state law; and an employerowned policy unless the policy qualifies for an exception under IRC Sec. 101(j). Page 3 of 14
Exhibit A: Spousal Lifetime Access Trust Using Life Insurance 1 Create SLAT 2 Spousal Lifetime Access Trust 3 Life Insurance Policy Gift of Separate Property Premiums Insured/Grantor 6 Distributions 4 5 Death Benefit Lifetime Distributions to Non-Insured Spouse SLAT Beneficiaries Non-Insured Spouse 1 Create SLAT: With the help of an attorney, insured/grantor creates a Spousal Lifetime Access Trust (SLAT). 2 Gifts to SLAT: Insured/grantor gifts separate property funds to the SLAT to help fund the payment of the life insurance policy premiums. This gift may be subject to gift tax depending on the insured s/grantor s use of his or her annual exclusion gifts and/or lifetime gift tax exemption amount. 7 3 Life Insurance Premiums: Trustee 8 of the SLAT purchases a life insurance policy insuring insured s/grantor s life and the SLAT becomes the owner and beneficiary of the life insurance policy. 7 See footnote 1. 8 See footnote 3. 9 Tax-free income assumes, among other things: (1) withdrawals do not exceed tax basis (generally, premiums paid less prior withdrawals); (2) policy remains in force until death; (3) withdrawals taken during the first 15 policy years do not occur at the time of, or during the two years prior to, any reduction in benefits; and (4) the policy does not become a modified endowment contract. See IRC Secs. 72, 7702(f)(7)(B), 7702A. 4 Lifetime Distributions: Assuming no other trust taxable income, the trustee, at his or her discretion, may then make income tax-free 9 and gift tax-free distributions to the non-insured spouse. During the insured s/grantor s lifetime, the trustee of the SLAT has the discretion to take loans and withdrawals, which may be income tax-free 9 to the SLAT if within limits and up to basis, from the policy s cash value. 5 Death Benefit Proceeds Paid to SLAT: At the insured s/grantor s death, the SLAT should receive the life insurance death benefit proceeds free from estate and income tax. 10 The SLAT trustee may make distributions to the SLAT beneficiaries according to the terms of the SLAT. 6 DISTRIBUTIONS: The SLAT trustee may make distributions to the SLAT beneficiaries according to the terms of the SLAT. 10 For federal income tax purposes, life insurance death benefits generally pay income tax-free to beneficiaries pursuant to IRC Sec. 101(a)(1). In certain situations, however, life insurance death benefits may be partially or wholly taxable. Situations include, but are not limited to: the transfer of a life insurance policy for valuable consideration unless the transfer qualifies for an exception under IRC Sec. 101(a)(2) (i.e., the transfer-for-value rule ); arrangements that lack an insurable interest based on state law; and an employer-owned policy unless the policy qualifies for an exception under IRC Sec. 101(j) Page 4 of 14
Frequently Asked Questions 1. What are the features of a SLAT? The couple should have indirect access to the SLAT-owned life insurance policy s cash value. The terms of the SLAT will give the trustee of the SLAT the discretion to take loans and withdrawals, which may be income tax-free to the SLAT if within limits and up to basis, from the policy s available cash value. 11 If the SLAT has no other taxable income, the trustee, within his or her discretion, may then make income tax-free 12 distributions to the designated spouse, referred to as the non-grantor spouse. The non-grantor spouse is the person who did not create or fund the trust. Accordingly, if and when the family needs funds, the trustee has the discretion to take income tax-free 13 withdrawals and loans from the life insurance policy s available cash value and make distributions to the non-grantor spouse. 14 Using the unlimited marital deduction, the non-grantor spouse may then gift some or all of these funds to the grantor spouse. 15 The life insurance policy s death benefit proceeds should pass to the trust beneficiaries free from estate tax. In the typical situation, an insured maintains ownership of a policy if he or she wants to maintain access to the policy s available cash value. Unfortunately, this form of ownership may subject the life insurance policy s death benefit proceeds to estate tax. 16 If a life insurance policy is instead owned by a SLAT, the couple could have indirect access to the life insurance policy s available 11 See footnote 5. 12 See footnote 5. 13 See footnote 5. 14 See footnote 1. 15 The insured should not have a pre-existing arrangement to share such funds prior to the insured s creation of the SLAT or trust proceeds could be included in the insured s estate. Treas. Reg. 20.2036-1(a). 16 IRC Sec. 2042. See footnote 1. Page 5 of 14
cash value without subjecting the policy s death benefit proceeds to the possibility of estate tax. This statement is true if the trust is properly drafted 17 and properly funded with the grantor spouse s separate property. 18 2. What is the difference between a SLAT and an ILIT? A SLAT is a type of ILIT. As with an ILIT, a SLAT is irrevocable and generally designed to own life insurance. The main difference between a SLAT and a traditional ILIT is the use of specially drafted provisions in the trust document. These provisions give the SLAT trustee the discretion to take loans and withdrawals from the life insurance policy s available cash value and make distributions to the non-grantor spouse. In this way, a couple who creates a SLAT may retain indirect access to the life insurance policy s available cash value. This indirect access is achieved by naming the non-grantor spouse as a beneficiary of the SLAT during his or her lifetime and giving the trustee of the SLAT the discretion to make distributions to the non-grantor spouse. In this way, if the trustee 19 exercises his or her discretion and makes distributions to the non-grantor spouse, the 17 Proper drafting of the SLAT should prevent the grantor and the non-grantor spouse from retaining any prohibited power or benefit over the trust or policy that would cause the trust property to be included in either spouse s estate. IRC Secs. 2036, 2038, 2041 and 2042. The IRS has privately ruled that the proceeds of an ILIT holding a survivor life policy were not includable in wife's estate under Secs. 2036, 2038 or 2042 even though the trustee had the discretion to take withdrawals and loans from the policy s available value and make distributions to wife. Priv. Ltr. Rul. 97-48-029 (Aug. 29, 1997). Private letter rulings are only binding upon the IRS as to the individuals and facts specifically set forth in the rulings, yet such rulings are generally indicative of the IRS' view as to certain tax situations. A key element to proper drafting is including language prohibiting the trustee from discharging the grantor of any legal obligation to support the non-grantor spouse. If the distributions to the non-grantor spouse discharge the grantor spouse of his legal obligation to support the spouse, some or all of the trust property would be subject to tax at the grantor spouse s death. Treas. Reg. Sec. 20.2036-1(b)(2). 18 Proper funding of the SLAT with the grantor s separate property should prevent the non-grantor spouse from becoming a grantor of the trust. It is important that the nongrantor spouse not be considered a grantor of the trust because being a grantor and beneficiary of the trust causes inclusion of trust property in a beneficiary s estate. IRC Sec. 2036. In Priv. Ltr. Rul. 97-48-029, the IRS reasoned that Sec. 2036 did not apply to cause inclusion of the trust property in wife's estate since wife had not made any contributions to the trust. Priv. Ltr. Rul. 97-48-029 (Aug. 29, 1997). 19 See footnote 3. Page 6 of 14
non-grantor spouse may utilize the unlimited marital deduction to gift the distributions to the grantor spouse free of transfer taxes. 20 3. Who can serve as trustee of the SLAT? Any competent adult, other than an insured, can serve as trustee of the SLAT. 21 A life insurance producer should not serve as the trustee of the SLAT. A life insurance producer who is paid a commission on the sale of a life insurance policy represents both his or her personal interest and the interests of the trust, creating an insoluble conflict of interest. The SLAT document typically appoints an adult child or family friend of the couple to serve as trustee of the trust. If the life insurance policy purchased by the SLAT is a single life policy insuring one spouse, it is possible, but not typically recommended, for the non-grantor spouse to serve as trustee of the SLAT. If the non-grantor spouse serves as the trustee, his or her ability to access the life insurance policy s available cash value must be limited to an ascertainable standard of distributions for his or her health, support, maintenance, or education. 22 Otherwise, the non-grantor spouse s powers over the trust would subject the trust property to inclusion in his or her gross estate. 23 To prevent limitations on distributions to the non-grantor spouse, the grantor may choose to appoint an adult child or family friend to serve as trustee of the SLAT and provide the trustee with the discretion to distribute trust property to the non-grantor spouse. If the life insurance policy purchased by the SLAT is a second-todie policy, the non-grantor spouse is also an insured party. Accordingly, the non-grantor spouse, as an insured, should not serve as the trustee of a SLAT because his or her powers as trustee 20 See footnote 1. 21 An insured should not serve as trustee because his or her powers as trustee would constitute an incident of ownership causing inclusion of the life insurance policy death benefit proceeds in the insured s gross estate. IRC Sec. 2042. 22 Treas. Reg. Sec. 20.2041-1(c)(2). 23 Broader access to trust property would constitute a general power of appointment causing inclusion of trust property in the non-grantor spouse s estate. IRC Sec. 2041. Page 7 of 14
would constitute an incident of ownership. 24 Consequently, these powers would cause the life insurance death benefit proceeds to be includable in the non-grantor s/insured s spouse s gross estate for estate tax 25 purposes. If a SLAT is designed to own a second-to-die policy, it is important to appoint an independent third party trustee to avoid these disastrous results. 4. Will the grantor spouse lose access to the life insurance policy s available cash value upon divorce or death of his or her spouse? This depends on how the SLAT is drafted. Attorneys typically draft SLATs to benefit the spouse who is living and married to the grantor of the trust. Accordingly, if drafted properly, the nongrantor spouse typically loses his or her status as the beneficiary of the SLAT when he or she dies or if the marriage dissolves. 26 If the grantor spouse remarries, his or her new spouse would then become the SLAT beneficiary, thereby providing the grantor spouse with the same indirect access to the life insurance policy s available cash value that the former non-grantor spouse had upon creation of the SLAT. Thus, the grantor spouse will not necessarily lose access to the life insurance policy s available cash value upon the death or divorce of his or her spouse. Assuming the grantor spouse does not remarry, he or she may still have indirect access to the life insurance policy s available cash value because most trusts provide the trustee with the discretion to make loans to the grantor. 24 See footnote 17. 25 See footnote 1. 26 If a court determines that the insured funded the trust with community or marital property, the court may conclude that the non-grantor spouse has some rights in the trust property. Page 8 of 14
5. Why must the grantor spouse fund the SLAT with his or her separate property? Proper funding of the SLAT is vital to preventing the trust property from being subject to estate tax at the non-grantor spouse s death. The non-grantor spouse should not purposefully or inadvertently fund the trust. If he or she does so, the non-grantor spouse is now deemed a grantor. The dual status as grantor and beneficiary of the SLAT will cause the trust assets to be includable in the nongrantor spouse s estate at his or her death and, therefore, be subject to estate tax at death. 27 The non-grantor spouse could inadvertently fund the trust if the grantor spouse transfers community property 28 or joint funds to the trust. Accordingly, prior to transferring assets to the SLAT, the grantor spouse should make sure that the funds being transferred are his or her separate property. 29 Similarly, if the grantor spouse is contemplating transferring an existing life insurance policy, purchased with joint or community property, to the SLAT, the nongrantor spouse should be certain to gift any interest he or she owns in the life insurance policy to the grantor spouse before the life insurance policy is transferred to the SLAT. 30 6. Can each spouse establish a SLAT for the other spouse? A married couple should only establish one SLAT. If each spouse established a SLAT for the benefit of the other spouse, the IRS could apply the reciprocal trust doctrine. If this doctrine is applied, each spouse is treated as establishing a trust for his or her 27 IRC Sec. 2036. 28 The community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. 29 A client s attorney can determine the appropriate manner of transmuting community property funds to separate property funds for use in funding a trust. 30 The spouse s gift of his or her interest in the policy, if any, to the grantor, should occur well before a policy is transferred to the SLAT. Otherwise the IRS could apply the steptransaction doctrine and find the spouse designated as a beneficiary of the SLAT was a co-grantor of the trust. Page 9 of 14
own benefit, causing the assets in the trust to be included in each spouse s estate at death. 31 7. Can a grantor spouse gift split with the non-grantor spouse if a SLAT is used? Gift splitting means a husband and wife can elect to treat a gift given by one of them as if half were given by each of them. 32 For example, if Greg gives his aunt, Josephine, $28,000 in 2013, and gift splitting is not elected, the IRS may treat that as a $28,000 gift by just the one spouse (Greg), even if the funds are drawn from a joint account (Greg and Tracy s joint account). Assuming this is the case, Greg s gift may be subject to gift taxes depending on the use of his annual exclusion amount ($14,000 in 2013) and/or his lifetime gift tax exemption amount. 33 If gift splitting is elected on IRS Form 709, the $28,000 gift to Aunt Josephine is treated as coming from both Greg and Tracy. If Greg and Tracy have not made any other gifts to Aunt Josephine in 2013, this gift will not be subject to gift taxes because it falls within the couple s annual exclusion amount ($28,000: $14,000 from Greg and $14,000 from Tracy). If the couple elects to create a SLAT, the grantor spouse may elect to split gifts with the non-grantor spouse if the non-grantor spouse s ability to access the life insurance policy s available cash value is limited to access based upon an ascertainable standard of distributions (health, education, support and maintenance). The couple must, however, make sure that the gift to the SLAT only consists of the grantor s separate property. 8. What type of life insurance policy can a SLAT own? This depends on the clients needs. Unless precluded by the SLAT document, a SLAT may own any type of life insurance policy the 31 Lehman v. Comm r., 109 F.2d 99 (2d Cir. 1940), cert. denied; United States v. Estate of Grace, 395 U.S. 316 (1969). Please consult with an attorney for more information about the reciprocal trust doctrine or any other information discussed herein. 32 IRC Sec. 2513(a). 33 See footnote 1. Page 10 of 14
trustee chooses. This includes, but is not limited to, a single life insurance policy or a second-to-die life insurance policy. There are, however, special considerations when using a single life or second-to-die life insurance policy. 34 9. How does a SLAT owning a second-to-die life insurance policy pay for the life insurance policy premiums upon the death of the grantor spouse? If the SLAT owns a second-to-die life insurance policy and premiums are still due at the death of the grantor spouse, the trust will need funds to continue to pay the life insurance policy premiums. One potential solution to this problem is for the non-grantor spouse to loan funds to the trust. As mentioned previously, the non-grantor spouse should not become a grantor of the SLAT because his or her status as grantor and beneficiary will cause trust assets to be includable in his or her estate and, therefore, be subject to estate tax at his or her death. 35 If the loan is structured properly and bears interest at the applicable federal rate set forth in IRC Section 1274(d), a loan by the non-grantor spouse to the SLAT should not cause the non-grantor spouse to be deemed a grantor of the trust. Additionally, the couple can plan ahead when purchasing a secondto-die life insurance policy in a SLAT to help ensure that there will be sufficient funds in the SLAT to pay future premiums upon the death of the grantor spouse. First, a shorter planned premium schedule 36 could be used to shorten the time period the premiums are paid. Second, the grantor spouse could pre-fund the SLAT. For example, if there is a spread between the life insurance premium amount and the amount that the grantor spouse could gift to the trust beneficiaries by making annual exclusion gifts, the grantor spouse could gift the entire amount to pre-fund the SLAT. These 34 See generally Questions 3, 5 and 9. 35 IRC Sec. 2036. 36 It is important to keep in mind that a planned premium schedule is oftentimes based on non-guaranteed elements (such as a non-guaranteed rate of return or earnings rate). Page 11 of 14
gifts may provide the SLAT with the requisite funds to pay any future premiums. Third, a separate term life insurance policy could be purchased in the SLAT on the life of the grantor spouse if underwriting requirements are met. The death benefit proceeds payable on the death of the grantor spouse may provide the SLAT with the requisite funds to pay any future premiums. 10. Can a SLAT be created by an unmarried couple? SLATs are designed to provide indirect access to married couples. This is the case because the non-grantor spouse is able to take advantage of the unlimited marital deduction and can make discretionary gifts of his or her distributions from the SLAT to the grantor spouses free of gift tax. If the couple establishing a SLAT is unmarried, they do not have the advantage of using the unlimited marital deduction. Consequently, any gifts made by the nongrantor to the grantor may be subject to gift tax depending on the non-grantor s use of his or her annual exclusion and/or lifetime gift tax exemption amount. 37 11. Can the trust be drafted to provide for future children? An attorney can draft a SLAT broadly to provide benefits to the couple s future children, if any. This means that a young couple can begin reducing their estate by gifting today, regardless of whether they anticipate having future children. In addition, the trust agreement can provide the trustee with a limited power of appointment allowing the trustee to change the time and manner of trust distributions to the couple s children. This flexibility may be particularly important to a young couple 37 Pursuant to the Federal Defense of Marriage Act, no state (or other political subdivision within the United States) need recognize a marriage between persons of the same sex, even if the marriage was concluded or recognized in another state. Furthermore, the federal government may not recognize same-sex or polygamous marriages for any purpose, even if concluded or recognized by one of the states. 1 U.S.C. Sec. 7 and 28 U.S.C. Sec, 1738C. As a result, the federal unlimited marital deduction is unavailable for a marriage between persons of the same sex. Page 12 of 14
with young children or who plan on having children in the future. This power could allow a trustee to withhold or accelerate trust distributions depending upon the child s maturity, spending habits or needs. 12. Why would a couple need indirect access to a life insurance policy s available cash value? SLATs are a means by which a married couple can retain indirect access to the life insurance policy s available cash value. Although a couple may not anticipate needing this access, life can be unpredictable. Even though someone does not need access to the cash value today, that does not mean they will not need access to the cash value in five or ten years. By incorporating SLAT provisions into an ILIT, a couple can plan for what if situations that may arise. If the need for access does not arise, the couple has not lost anything. If, on the other hand, the need arises, the couple is in a win-win situation because of their ability to access these funds. This flexibility can be very useful when life takes an unexpected turn. 13. How can creating a SLAT address estate tax uncertainty? Uncertainty over future estate tax exemption amounts or estate tax rates, as well as uncertainty over where the couple's financial situation will be is one reason to implement flexibility in one s estate planning. SLATs are a great way to incorporate this type of flexibility because of the couple s ability to retain indirect access to the life insurance policy s available cash value. As discussed above, assuming the SLAT is drafted properly, and the couple s estate tax situation changes, the couple may still have some access to the cash value of the life insurance policy that was purchased for estate liquidity and may use it for other purposes (i.e., to supplement retirement income or for family needs). Page 13 of 14
Conclusion A SLAT is an important estate planning tool for a wealthy couple to consider if they: (1) are contemplating the purchase of a life insurance policy for estate liquidity purposes; (2) want the life insurance policy death benefit proceeds to pass estate 38 and income tax-free 39 to their heirs; and, (3) want to maintain indirect access to the life insurance policy s available cash value. 38 See footnote 1. 39 For federal income tax purposes, life insurance death benefits generally pay income tax-free to beneficiaries pursuant to IRC Sec. 101(a)(1). In certain situations, however, life insurance death benefits may be partially or wholly taxable. Situations include, but are not limited to: the transfer of a life insurance policy for valuable consideration unless the transfer qualifies for an exception under IRC Sec. 101(a)(2) (i.e., the transfer-forvalue rule ); arrangements that lack an insurable interest based on state law; and an employer-owned policy unless the policy qualifies for an exception under IRC Sec. 101(j). Page 14 of 14
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