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Unholy trinity10/31/2022 ![]() ![]() An employer wanting to offer a benefit to an employee unknowingly creates a tax problem in the future. The problem is that there are three different people or entities on each different structure point. The business owns and pays for the policy on an employee who is the insured and the employee names their spouse as the beneficiary. Goodman the owner and donor, and her children and sister in-law the beneficiaries.īusinesses taking out life insurance on owners and employees is a scenario where the policy falls victim to the Unholy Trinity. When all three are different you likely have the Unholy Trinity. Two of these structure points should be the same person or entity. You can avoid the Unholy Trinity by being cognizant of the three title structure points of a life insurance policy. Goodman relinquished control of the trust. The gift tax would have been avoided had Mrs. Goodman retained some control of the trust the death benefit was considered an “incomplete gift”. Goodman as the owner and donor to the trust, and the beneficiaries were her three children and sister-in-law. ![]() Goodman as the owner then donor failed to give up control of the trust and was responsible for making a “taxable gift.” The policy had been structured with Mr. Goodman transferred several life insurance policies she owned on her husband to a Revocable Trust in 1930. The Goodman Rule is a 1946 US court case, Goodman v. A simple oversight can create the unholy triangle or the Goodman rule trap. What is often left out of the conversation regarding the tax treatment of the death benefit is how the policy is structured in terms of who is the insured, owner, and beneficiary. People take out life insurance with the understanding that the death benefit is paid to their beneficiaries tax-free. ![]()
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