May 1, 2007 12:00 PM

By Robert B. Barnett, Jr., managing partner, and Jessica K. Vllasi, associate, Carlile Patchen & Mur

For years, advisors have gone blissfully along in their planning for families and business owners, devising wonderfully helpful trusts and solving liquidity needs with the use of life insurance. Often these techniques are combined, especially in the context of irrevocable life insurance trusts (ILITs.) Because these transactions are almost always between “related” (by blood, marriage or business) parties, one of whom is the insured in those situations involving the purchase of life insurance, nary a thought was given to the requirement that the original owner of the life insurance have an insurable interest in the insured for the policy to be valid. The owners of these policies have been the insured, a person related to the insured, or the trustee of a trust for the benefit of some related person. The policies were applied for, issued by the insurance companies, and problem solved.

Then the U.S. District Court for the Eastern District of Virginia handed down its decision on Feb. 5, 2005, in Chawla v. Transamerica Occidental Life Insurance Company¹ declaring that, under Maryland law, the trustee of a trust must have an insurable interest in the insured, regardless of the insured's relationship to the trust beneficiaries. The U.S. Court of Appeals for the Fourth Circuit affirmed the decision.

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

2011 Trust Glossary

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50 Years Ago This Month

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50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

Click here to view the most up to date guide (September 2011)

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