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We suggest that you discuss your specific situation with a qualified tax or legal advisor.īusiness photo created by nensuria - The financial consultants at The Wealth Consulting Group are registered representatives with, and securities are offered through, LPL Financial, Member FINRA/ SIPC. This information is not intended to be a substitute for specific individualized tax or legal advice. Investing involves risk including loss of principal. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. Investing in stock includes numerous specific risks including the fluctuation of dividend, loss of principal, and potential illiquidity of the investment in a falling market. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. WCG Wealth Advisors and The Wealth Consulting Group are separate entities from LPL Financial. Investment advice offered through WCG Wealth Advisors, a registered investment advisor. Securities offered through LPL Financial, Member FINRA/SIPC. Goodman makes a tough time worse and it is avoidable. The death of a loved one is stressful enough and being blindsided by additional taxes like Mrs. When we talk about policy reviews, we always think about the policy performance, but a review should always include a review of the three title structure points to make sure there is no hidden gift tax issue lurking, because of the Unholy Trinity. Executive bonuses or split-dollar arrangements can prevent that from happening. 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.

The unholy trinity