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Biden Administration Budget 2022: Employer Sponsored Death Benefits a Forgotten Planning Tool

By Lawrence L. Bell
August 01, 2021

Part One of this article, in last month's issue, introduced the concept of the taxation of capital income, under which the donor or deceased owner of an appreciated asset would realize a capital gain at the time of the transfer. The article discussed how an Employer-Sponsored Death Benefit plan could help remove the appreciated asset from one's estate and how the assignment of such a policy to an irrevocable life insurance trust (ILIT), or insurance limited partnership (ILP) will be recognized for federal transfer tax purposes.

Part Two provides more scenarios under which the asset may be assigned, based on IRS memoranda.

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Written But Unannounced Rules

In the unpublished Technical Advice Memorandum (TAM) 97-6842, dated March 1, 1997, the IRS ruled that it would ignore the existence of an ILP for estate tax valuation purposes and would view the transactions as a single testamentary transfer. Under the circumstances described in the TAM, the IRS found that the sole purpose of the ILP was to reduce the estate taxes and, alternatively, that the IRC §2703(a)(2) applied. This TAM should be reviewed by all professionals who deal with ILPs, but professionals and taxpayers may consider the TAM to be a legitimate reaction to the abuse of an ILP to avoid estate taxes.

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