Does a Personal Guarantee constitute an “incident of ownership” under IRC Sec. 2042?
A. No. Internal Revenue Regulation 20.2042-1 provides a definition of what may constitute indictments of ownership by an insured. It is not limited in its meaning to ownership of the policy by also refers to the right of the insured or his estate to the economic benefit of the policy. A qualifying right might be the power to change the beneficiary, to surrender or cancel the policy, to assign the policy, to revoke an assignment, to pledge the policy for a loan or to obtain from the insurer a loan against the surrender value of the policy. If the grantors provide a loan guarantee for the ILIT, they obtain no rights in the policy of any kind and are unable to exercise any control over the policy. All of the rights and benefits of the policy remain with the ILIT. Therefore, the policy death benefit is not included in the taxable estate of the guarantor. Recently, the IRS further clarified this position in IRS Letter Ruling 9809032. In the Ruling, incidents of ownership in insurance polici
