Goodman Rule

[Lewis_FL]

Am I violating the Goodman Triangle? I wrote an app on my granddaughter (a minor and the insured) where I'm the custodian (and payor) as a UTMA. It's under her SSN and her parents are the beneficiaries. Technically she's the owner right? This is the 3rd app on grandkids and the first time the carrier is asking.
Thanks

 

[Allen Trent]

Am I violating the Goodman Triangle? I wrote an app on my granddaughter (a minor and the insured) where I'm the custodian (and payor) as a UTMA. It's under her SSN and her parents are the beneficiaries. Technically she's the owner right? This is the 3rd app on grandkids and the first time the carrier is asking.
Thanks

Nope, you should be all set. In your example there are only 2 parties to the contract. Insured is the owner & you are merely acting as her custodian while she is a minor. Only way this is a gift tax issue is on the premium, not the death benefit. If premium paid & any other current gifts exceed total of $17k in 2023, then the payor could owe gift taxes if audited by IRS & found that they exceeded total gifts exceeding the annual exemption (extremely extremely unlikely)

Now, with that said, I am seeing cases where agents have 1 parent as owner, other parent as contingent owner, minor as insured & then the agent puts both parents as 50/50 primary bene. Carriers will call attention to this as Goodman because the parents as 50/50 are adding a 3rd party to the contract. This is fine if parents are still married when insured dies as there is no gift tax between spouses. But if mom & dad divorce & insured dies, the owner would owe gift taxes on the death benefit paid to the ex spouse if the amount exceeds the current annual gift tax exemption ($17k in 2023). IE $100k death benefit with $50k paid to ex spouse coulf cause owner/payor to owe gift taxes on $33k that their ex spouse collected

E-apps have brought this Goodman to the forefront as the apps are programmed & underwriting systems to point out the unholy Trinity of 3 parties to life contract. Most carriers just want an affirmative response they can put on file that Agent said they explained Goodman to the owner/payor. Most agents have never known for decades they were creating this potential problem as it required the carrier to pick up on it manually on the applications

 

[Lewis_FL]

Wow awesome reply Allen. I concur but haven't had this come up in a long time. Thanks so much.

 

[Tahoe Ray]

Nope, you should be all set. In your example there are only 2 parties to the contract. Insured is the owner & you are merely acting as her custodian while she is a minor. Only way this is a gift tax issue is on the premium, not the death benefit. If premium paid & any other current gifts exceed total of $17k in 2023, then the payor could owe gift taxes if audited by IRS & found that they exceeded total gifts exceeding the annual exemption (extremely extremely unlikely)

Now, with that said, I am seeing cases where agents have 1 parent as owner, other parent as contingent owner, minor as insured & then the agent puts both parents as 50/50 primary bene. Carriers will call attention to this as Goodman because the parents as 50/50 are adding a 3rd party to the contract. This is fine if parents are still married when insured dies as there is no gift tax between spouses. But if mom & dad divorce & insured dies, the owner would owe gift taxes on the death benefit paid to the ex spouse if the amount exceeds the current annual gift tax exemption ($17k in 2023). IE $100k death benefit with $50k paid to ex spouse coulf cause owner/payor to owe gift taxes on $33k that their ex spouse collected

E-apps have brought this Goodman to the forefront as the apps are programmed & underwriting systems to point out the unholy Trinity of 3 parties to life contract. Most carriers just want an affirmative response they can put on file that Agent said they explained Goodman to the owner/payor. Most agents have never known for decades they were creating this potential problem as it required the carrier to pick up on it manually on the applications

I'll worry about this stuff once my wife and I have 26 million or so...

Good answer, Allen.

 

[Allen Trent]

I'll worry about this stuff once my wife and I have 26 million or so...

Good answer, Allen.

Actually, even people who are broke can get caught in this unholy Trinity of life insurance. Grandpa is owner of life policy on grandchild & father is the bene. If child dies, tax notice is issued because the father benefited from the policy death benefit & wasn't the owner.

While not Goodman Triangle issue, the Other one I am seeing catch people off guard lately is grandparent or parent that bought a single premium MEC or NQ annuity on a grandchild or child. At age 20 or 25 or whatever age, owner decides it is time to change ownership to the insured. They submit ownership form & are shocked to get a 1099 that the releasing owner owes taxes on the gains & the new receiving owner gets a new step up in cost basis to today's value. Had the ownership changed at death of owner, it wouldn't have been a taxable event