Another tax advantaged element of the MTAT strategy is the absence of federal income tax liabilities.
By making a permanent life insurance policy the depository of the contributions to the MTAT, a special tax-favored (and effectively government-supported) benefit is given to the wealthy.
If death occurs to the insureds while the policy is in force, the entire build up becomes an income-tax-free distribution to the MTAT.
This tax-advantaged power of the MTAT is frequently under emphasized and largely overlooked.
Under the MTAT arrangements, even this tax is lessened.
In the MTAT, the capital gains tax is avoided as long as the policy remains in force until death of the insureds.
As the accompanying table shows, the MTAT affords insureds a vehicle with which to pass on assets free of gift, estate and income taxes.