Under the Cristofani case, this gift tax-avoidance strategy was expanded to include gifts to bona fide contingent beneficiaries of the MTAT. By including grantor's children, the children's spouses and the grandchildren in this gifting technique, in many cases, the entire premium amount is able to avoid gift taxation.
Since the MTAT owns the life policy on the insured from the policy's inception, upon death, the beneficiaries of the trust receive the proceeds free of gift taxes as well.
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.
It is important to note the MTAT will require the engagement of a well qualified estate planning attorney.