SC Business & Trust Attorney Partnership | Post-OBBBA · Post-Connelly · IRC §§ 2042 · 2035 · 2503(b) · 7702 | Wolf Financial
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Not Legal or Tax Advice. This page is an informational resource for licensed South Carolina attorneys and CPAs. Wolf Financial is a licensed insurance brokerage — not a law firm, accounting firm, or RIA. Nothing on this page (including statutory references, case citations, and discussion of estate or tax doctrines) constitutes legal advice, a legal opinion, tax advice, or a substitute for independent professional judgment. Attorneys are solely responsible for legal research, drafting, and advising their clients.

For SC Business, Trust & Estate Attorneys — Post-OBBBA · Post-Connelly

You Draft the Trust.
We Put a Correctly-Structured
Policy Inside It.

OBBBA made the $15M exemption permanent. Connelly blew up every entity-purchase buy-sell funded with corporate-owned life insurance. The SC Trust Code was amended in 2025 to address grantor-trust tax reimbursement clauses. The framework moved — your structures, and the policies funding them, need to move with it. Wolf Financial is the insurance execution partner that understands §2042, §2035, §2503(b), §7702, and SC Title 62 Article 7 — so the trust you drafted isn’t an empty shell when your client dies.

OBBBA · IRC § 2010(c) Connelly v. United States (2024) IRC § 2042 · § 2035 IRC § 2503(b) IRC § 7702 · § 7702A SC Code Title 62 Art. 7
$15M
Permanent Exemption (2026)
40%
Federal Estate Tax Rate
§ 2042
ILIT-Literate Placements
64
A-Rated Carriers
The Legal Framework

The Statutes, Regulations, and Cases
Behind Every Insurance-Funded Structure

These are the authorities the funding policy has to work inside. If the broker doesn’t understand them, the ILIT leaks, the buy-sell inflates the estate, the §162 plan fails its reasonable-compensation test, or the §7702 structure becomes a MEC and loses its tax character. Your structure is only as sound as the policy funding it.

Statutory and case summaries below are general references for discussion with licensed counsel and tax advisors, not legal or tax interpretation. Confirm current status and applicability to specific facts through independent professional research.

OBBBA · IRC § 2010(c)(3) as amended by § 70106

The $15M permanent exemption reframes the audience, not the need

The One Big Beautiful Bill Act, signed July 4, 2025, permanently set the unified estate, gift, and GST exemption at $15 million per individual ($30 million per married couple), effective January 1, 2026, with inflation indexing from 2027. The 40% top rate is unchanged. “Permanent” means no sunset — but Congress can legislate it back down. Clients above the exemption still need liquidity. Clients below still need business-succession, buy-sell, and charitable-planning funding. 18 states plus DC impose separate state-level estate or inheritance taxes at lower thresholds — though South Carolina is not one of them.

South Carolina repealed its state estate tax effective January 1, 2005. SC clients owning property in NY, MA, IL, WA, MD, DC or other decoupled states still face state exposure.
Connelly v. United States, 144 S. Ct. 1406 (2024)

Entity-purchase buy-sells funded by COLI are now broken

Unanimous 9-0 opinion by Thomas, J., June 6, 2024. Held: life insurance proceeds received by a closely held corporation to redeem a deceased shareholder’s stock are an asset of the corporation includable in the company’s date-of-death value under IRC § 2031; the redemption obligation does not offset the proceeds. Rejected the Eleventh Circuit’s contrary holding in Estate of Blount, 428 F.3d 1338 (11th Cir. 2005). Result: the insurance meant to fund the buyout inflates the estate and the estate tax bill — often by up to 40% of the proceeds.

Every existing entity-purchase buy-sell funded with COLI warrants review. Cross-purchase and insurance LLC structures keep proceeds outside the entity's valuation.
IRC § 2042 · Treas. Reg. § 20.2042-1

Why the ILIT must own the policy

Life insurance proceeds are includable in the insured’s gross estate if (a) the proceeds are receivable by or for the benefit of the estate, or (b) the decedent possessed any “incidents of ownership” at death — the right to change beneficiaries, surrender, borrow against, pledge, or assign. Properly structured, an ILIT owns the policy and holds all incidents of ownership, keeping the death benefit outside the taxable estate. Broker placement matters: if the insured applies, is issued, and then assigns the policy to the ILIT, § 2035 is triggered (see next card). The trust needs to be the original applicant and owner.

Reference: Treas. Reg. § 20.2042-1(c)(2) defines "incidents of ownership." Broad interpretation — even economic benefit rights held in a fiduciary capacity may qualify.
IRC § 2035(a) — The Three-Year Rule

Transfer-to-trust within three years of death is clawed back

Under § 2035(a)(2), if the insured transfers an existing policy to an ILIT and dies within three years, the death benefit is pulled back into the gross estate as if the transfer never occurred. The only way to avoid § 2035 cleanly is for the trust to be the original applicant, owner, and beneficiary — the insured never holds the policy. This is a placement-side decision, not just a drafting decision: the application must be filed in the trust’s name, signed by the trustee, with premium paid by the trust from day one.

Practical rule: for a new ILIT, the trust must be fully executed and have a taxpayer ID before the insurance application is signed.
IRC § 2503(b) — Crummey Powers

Annual exclusion funding requires proper notice

Gifts to an ILIT are future-interest gifts by default and do not qualify for the annual exclusion ($19,000 per donee in 2026) without Crummey withdrawal powers. Following Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968), beneficiaries must have a present, noticed right to withdraw contributions for a reasonable period (typically 30+ days). The trustee sends written Crummey notices each year upon the grantor’s gift; the beneficiaries hold withdrawal rights that lapse per § 2514(e) five-and-five limits. If Crummey notices are not administered, the IRS may deny annual-exclusion treatment and the grantor uses lifetime exemption unnecessarily.

Wolf Financial coordinates premium timing with the trustee's Crummey-notice cycle. We do not draft the notice.
IRC § 7702 · § 7702A

The statute defining "life insurance" for tax purposes

§ 7702 defines what qualifies as a life insurance contract for federal tax treatment — including the income-tax-free death benefit under § 101(a) and inside buildup deferral. A policy passes either the cash-value accumulation test or the guideline-premium/cash-value-corridor test. § 7702A defines a Modified Endowment Contract: when premium funding exceeds the 7-pay limit, the policy loses favorable loan and withdrawal treatment under § 72(e) and distributions become LIFO-taxed with a 10% penalty before age 59½. For high-earning clients maxing qualified plans, a properly structured non-MEC permanent policy can provide tax-deferred accumulation and, during the insured’s life, basis-then-loan distributions under § 72(e) that are not treated as taxable income under current federal tax law.

Carrier issuing illustrations show 7-pay limits, MEC dates, and guideline-premium levels. We review these before placement.
IRC § 162 · Treas. Reg. § 1.162-7(b)(3)

Executive Bonus (§ 162) plans for closely held business clients

The employer pays a deductible bonus to a selected employee under § 162, who then pays the premium on a personally-owned permanent life insurance policy. No ERISA plan, no nondiscrimination testing, no IRS approval required — but deductibility is contingent on the total compensation (salary plus bonus) meeting the “reasonable compensation” standard under Treas. Reg. § 1.162-7(b)(3). A double-bonus structure grosses up the bonus to cover the employee’s income tax on it. A Restricted Executive Bonus Arrangement (REBA) adds a vesting schedule via a collateral assignment or endorsement, used for retention.

Reasonable-compensation analysis is a tax issue for the CPA. We place the policy correctly once the plan design is finalized.
IRC § 101(a) · § 101(a)(2) · § 1041

Death benefit taxation, transfer-for-value, and marital transfers

§ 101(a): death benefits are generally excluded from the beneficiary’s gross income. § 101(a)(2): the transfer-for-value rule — if a policy or any interest in it is transferred for valuable consideration, the death benefit is taxable to the transferee to the extent it exceeds consideration paid plus subsequent premiums, unless the transfer falls within a safe harbor (transfer to the insured, a partner of the insured, a partnership in which the insured is a partner, or a corporation in which the insured is a shareholder/officer). § 1041: transfers of policies between spouses or incident to divorce are non-taxable. Critical in buy-sell restructurings where policies are reassigned between entity and owners.

Post-Connelly restructurings from entity-purchase to cross-purchase frequently implicate § 101(a)(2). Sequencing and structure determine whether a safe harbor applies.
SC Code Title 62, Article 7 — SC Trust Code

South Carolina's trust law framework

SC enacted the SC Trust Code in 2005 (Act 66), substantially revised in 2013 (Act 100) and 2025 (Act 25). Key sections relevant to insurance-funded trusts: § 62-7-505 (creditors' claims against settlor — critical self-settled trust caveat), § 62-7-502 (spendthrift provisions), § 62-7-813 (trustee duty to inform and report qualified beneficiaries), § 62-7-816 (trustee's specific powers, including power to collect life insurance proceeds payable to the trust), § 62-7-1005A (trust protector provisions), and § 62-7-411 through § 62-7-417 (modification and termination of irrevocable trusts — useful when an old ILIT no longer fits the plan).

SC allows trust protectors and decanting — useful for updating ILITs drafted under prior tax regimes without collapsing them.
SC Code § 62-7-816A (2025 Act 25)

Grantor-trust tax reimbursement — SC's 2025 ILIT update

Effective May 8, 2025, SC enacted a statutory default allowing trustees of grantor trusts to reimburse the grantor for income taxes attributable to trust income — except that reimbursement may not be paid from a life insurance policy on the grantor’s life held in the trust, its cash value, or loan proceeds secured by it. The statute applies to all trusts governed by or principally administered in SC, regardless of execution date, unless the trust prohibits reimbursement or the trustee elects out with 90 days’ notice. Relevant for ILIT drafting going forward: the carve-out for life insurance policies preserves ILIT estate tax effectiveness.

Section 62-7-816A, enacted by 2025 Act No. 25. Attorneys should review whether existing ILITs should opt in, opt out, or be modified by decanting.
SC Code § 38-63-40 · § 38-63-50 · § 38-63-100

SC creditor protection for life insurance

§ 38-63-40: life insurance proceeds and cash surrender values payable to a beneficiary other than the insured’s estate, for the primary benefit of the spouse, children, or dependents, are exempt from the insured’s creditors — whether or not beneficiary is revocable, with carveouts for bankruptcy filed within 2 years, fraud, and valid assignments. § 38-63-40(C): group life proceeds exempt. § 38-63-50: spendthrift provisions in settlement agreements are valid. § 38-63-100: insurable interest construed liberally. Strong layered asset protection when combined with ILIT ownership.

Useful planning point for business owners with personal-guarantee exposure or professional-liability concerns.
SC Code Title 33 — SC Business Corporation Act / LLC Act

Entity governance and buy-sell enforceability

SC business entities are governed by Title 33: Chapter 44 (SC Uniform Limited Liability Company Act), Chapter 41 (Uniform Partnership Act), and the SC Business Corporation Act. Buy-sell agreements are typically enforced under these chapters as shareholder/member agreements. SC also recognizes IRC § 2703 valuation requirements: a buy-sell agreement fixes value for estate tax only if it’s a bona fide business arrangement, not a device to transfer wealth below fair market value, and has terms comparable to arm’s-length agreements. Post-Connelly, § 2703 analysis has renewed importance for any agreement fixing a redemption price below fair market value.

Reference: IRC § 2703(b); Treas. Reg. § 25.2703-1. Family-owned entity agreements face heightened scrutiny.
Three Failure Modes That Gut the Plan

Every Estate Attorney Has Seen One.
We Place Policies That Avoid All Three.

These are the specific insurance-placement failures that defeat a well-drafted structure. The document is fine; the policy funding it is wrong.

FAILURE 01

The § 2035 Three-Year Clawback

Client buys an individually-owned policy, the attorney drafts an ILIT, and the client transfers the existing policy into the trust. Client dies within three years. § 2035(a)(2) pulls the full death benefit back into the gross estate as if the transfer never happened. The ILIT is operationally sound; the insurance placement created the problem. Correct placement: the trust is the original applicant, owner, and beneficiary from inception.

IRC § 2035(a)(2); Treas. Reg. § 20.2035-1
FAILURE 02

The Connelly Valuation Inflation

Closely held corporation owns life insurance on each shareholder; buy-sell requires entity redemption at death; shareholder dies; corporation collects the death benefit and redeems. Post-Connelly the insurance proceeds inflate the corporation’s value for estate tax on the decedent’s shares — the redemption obligation does not offset. Up to 40% of the death benefit is lost to federal estate tax. Fix: restructure to cross-purchase or insurance LLC so proceeds stay outside the entity.

Connelly v. United States, 144 S. Ct. 1406 (2024)
FAILURE 03

MEC Failure on §7702 Cash-Value Structure

High-earning client wants tax-advantaged accumulation in a permanent policy under § 7702. Broker funds it above the 7-pay limit to “maximize cash value.” Policy fails the § 7702A 7-pay test and becomes a Modified Endowment Contract. Loans and withdrawals lose § 72(e) tax-favored treatment, become LIFO-taxed ordinary income, and trigger a 10% penalty before age 59½. The strategy the attorney approved no longer works as designed. Fix: carrier illustration review before funding; design to stay under the 7-pay limit each policy year.

IRC § 7702A; § 72(e); § 72(v)
Post-Connelly Reality

Every Entity-Purchase Buy-Sell Funded by COLI
Deserves a Second Look.

On June 6, 2024, the Supreme Court unanimously held in Connelly v. United States, 144 S. Ct. 1406, that life insurance proceeds received by a closely held corporation to redeem a deceased shareholder’s stock are an asset of the corporation includable in the company’s date-of-death value — and that the redemption obligation does not offset the inclusion. The decision overrode practitioners’ reliance on Estate of Blount, 428 F.3d 1338 (11th Cir. 2005), under which the obligation was treated as an offsetting liability. The practical result: many existing entity-purchase agreements now create estate tax exposure they weren’t designed to create.

The Holding

What the Court Actually Decided

Justice Thomas, writing for a unanimous Court: a hypothetical willing buyer purchasing the decedent’s shares would consider the life insurance proceeds as an asset of the corporation. The redemption obligation — an obligation to exchange cash for the shares — does not function as a traditional liability. The inclusion increased the decedent’s share value from $3M to $5.3M in Connelly itself, with $889,914 of additional estate tax.

The Court acknowledged this “will make succession planning more difficult for closely held corporations” but said the result was a consequence of how the Connellys structured their agreement — there were alternatives.

Connelly v. United States, 144 S. Ct. 1406, 1414 (2024) (Thomas, J.)
The Fix

Cross-Purchase & Insurance LLC Structures

Under a cross-purchase, each shareholder owns policies on the other shareholders. Proceeds pass to the surviving shareholders individually, outside the entity, so they don’t inflate the decedent’s share value. Surviving shareholders get basis step-up on their purchased shares — a material income-tax benefit the entity-purchase structure lacks. For entities with more than 2-3 owners, an insurance LLC (partnership for tax purposes) can centralize policy ownership without tripping § 101(a)(2) transfer-for-value problems and without pulling proceeds into any operating entity’s valuation.

Transitioning an existing entity-purchase structure to cross-purchase or insurance LLC requires careful § 101(a)(2) analysis — transfers of policies between parties may trigger transfer-for-value unless a safe harbor applies. This is where legal, tax, and insurance sequencing matters.

See IRC § 101(a)(2); § 2703; Treas. Reg. § 25.2703-1 for valuation discipline.
Quick-Reference Matrix

Structure → Ownership → Tax Treatment

Before the carrier issues a policy, confirm ownership and beneficiary align with the drafted structure. The table below is a reference outline, not advice. Specific facts, state law, and evolving IRS guidance control; confirm with independent counsel and tax advisor.

Structure Policy Owner Primary Tax Treatment / Authority
ILIT (new policy, trust is original applicant)ILIT (trustee signs)Death benefit generally outside gross estate — IRC § 2042 / § 101(a)
ILIT with existing policy transferred inILIT (after transfer)3-year clawback risk — IRC § 2035(a)(2)
Cross-purchase buy-sellIndividual co-ownersProceeds outside entity valuation — Connelly workaround
Entity-purchase buy-sell (COLI)EntityProceeds increase entity value for estate tax — Connelly (2024)
Insurance LLC (partnership)LLC as partnershipPartnership safe harbor — IRC § 101(a)(2)(B)
§ 162 Executive BonusEmployee individuallyBonus deductible to employer; taxable to employee — IRC § 162
Restricted Executive Bonus (REBA)Employee w/ endorsementVesting via collateral assignment — IRC § 162
Key person / business loan coverageEntityPremiums non-deductible; proceeds to entity generally income-tax-free — IRC § 264 / § 101(j)
Max-funded non-MEC § 7702 IUL/WLIndividual or trustInside buildup tax-deferred; distributions under § 72(e) if non-MEC
Wealth replacement for charitable giftILITReplaces gifted value outside the estate — § 2042 / § 101(a)
Survivorship (second-to-die) in ILITILITPays at second death — funds estate tax with marital-deduction planning
The Referral Process

How a Clean Placement Works

We operate inside your drafting timeline and coordinate directly with your paralegal, the trustee, and the client’s CPA on the pieces that have to move together.

Step 01

Pre-Drafting Insurability Check

Before you finalize face amounts in the ILIT or buy-sell, we run preliminary underwriting on the insured. Health issues that affect rate class or insurability surface before the ink is dry on the trust — not after.

Step 02

Structure-Aligned Application

Policy is applied for in the name of the correct owner — trust, LLC, individual co-owner, or employee. Beneficiary matches the drafted structure. Trustee or authorized party signs the application. No post-issue assignments that trigger § 2035.

Step 03

Carrier Selection Across 64 A-Rated Carriers

Independent brokerage. We match policy type to purpose — term for short horizons, whole or UL for permanent ILIT funding, survivorship for second-to-die, max-funded § 7702 for accumulation. Realistic timelines: 2–6 weeks standard, 6–12 weeks for large face or impaired risk.

Step 04

Documentation for Your File

Issued policy, declaration page, in-force illustration, and beneficiary confirmation delivered to your office. Crummey-notice cycle coordinated with the trustee. We do not draft the notice. We deliver what the file needs.

Illustrative Sizing — Not Legal or Tax Advice

Sizing an ILIT-Funded Liquidity Policy

For an estate above the $15M exemption, death-benefit sizing typically targets the projected federal estate tax liability at life expectancy, net of expected step-up and deductions. The illustration at right is a representative high-net-worth family — numbers depend on estate composition, growth assumptions, state residency, marital deduction strategy, and the insured’s age/health. This is not a premium quote, not tax advice, and not legal advice on face-amount adequacy. Actual structure and sizing require review by the client’s attorney and CPA.

For clients below the exemption, sizing usually targets business-succession liquidity (buy-sell funding at the decedent’s proportionate ownership), loan coverage (outstanding business debt + personal guarantees), or charitable wealth-replacement (gifted value to be replaced for heirs).

ILIT Liquidity Sizing — Illustration
Hypothetical married couple, $35M combined estate, 2026 planning horizon
Projected estate at death$35,000,000
Combined exemption (2026, portability)$30,000,000
Taxable estate (approx.)$5,000,000
Top federal rate40%
Estimated estate tax liability~$2,000,000
Recommended policy (inside ILIT)$2M – $2.5M
Structural Benefit
Outside Estate
Properly-structured ILIT ownership means the death benefit is generally excluded from both income tax under IRC § 101(a) and the insured’s gross estate under IRC § 2042. Survivorship (second-to-die) structure often reduces premium given the married-couple insurable lives. Illustrative only; not a quote.
Structures We Fund

Insurance Placements for Every Plan You Draft

Irrevocable Life Insurance Trusts (ILITs)

New policies applied for, issued, and owned by the ILIT from inception — avoiding § 2035 clawback. Whole life, UL, IUL, or survivorship matched to trust design and funding capacity. Premium cycle coordinated with trustee’s Crummey-notice timing under § 2503(b).IRC § 2042 / § 2035 / § 2503(b) / § 101(a)

Cross-Purchase Buy-Sell (Post-Connelly)

Individual co-owner ownership of policies on each other. Proceeds flow to surviving owners outside the entity — avoiding Connelly valuation inflation. Basis step-up on purchased shares is a material income-tax benefit over entity-purchase.Connelly v. United States (2024); IRC § 2031

Insurance LLC (Partnership) Buy-Sell

For entities with 3+ owners where cross-purchase becomes unwieldy. LLC treated as partnership for tax purposes; policies owned by the LLC; partnership safe harbor under § 101(a)(2)(B) avoids transfer-for-value on restructurings.IRC § 101(a)(2)(B); § 761

Post-Connelly Restructuring Support

Existing entity-purchase agreements being converted to cross-purchase or insurance LLC. We place new policies, assist with structured transitions, and flag § 101(a)(2) transfer-for-value sequencing — coordinated with the attorney and CPA.IRC § 101(a)(2); § 2703

Estate Liquidity Coverage

For estates above the $15M exemption, death-benefit liquidity to pay federal estate tax at the 40% top rate without forced sale of business, farm, or real estate. Sized to projected liability at life expectancy net of deductions.OBBBA / IRC § 2010(c); § 2031

Key Person & Business Loan Coverage

Policies insuring critical owners or producers, with the entity as owner and beneficiary. Coverage for SBA loans and commercial lender requirements. Protects personal guarantees so debt doesn’t fall to the surviving family. § 101(j) notice-and-consent requirements addressed at application.IRC § 101(j); § 264

§ 162 Executive Bonus Plans

Deductible employer bonus funds employee-owned permanent policy. No ERISA, no nondiscrimination testing. Selective. Double-bonus and REBA structures available. Total-comp analysis coordinated with CPA under Treas. Reg. § 1.162-7(b)(3).IRC § 162; Treas. Reg. § 1.162-7(b)(3)

Max-Funded § 7702 Cash-Value Policies

Permanent policies structured to prioritize cash value under § 7702, with death benefit set at the minimum to avoid MEC under § 7702A. For clients who have maxed qualified plans and want tax-deferred accumulation with § 72(e) access to basis-then-loan during life. Requires 15+ year horizon; carrier illustration review before commitment.IRC § 7702 / § 7702A / § 72(e); § 101(a)

Dynasty / GST Trust Funding

Life insurance inside a generation-skipping trust leverages the GST exemption across multiple generations. Properly allocated GST exemption on premium gifts means the death benefit passes GST-exempt to grandchildren and beyond.IRC § 2601 et seq.; § 2631

Wealth Replacement & Charitable Planning

CRTs, CLTs, charitable gifts of appreciated assets — paired with an ILIT-held policy to replace the gifted value for heirs. The family preserves inheritance while the client captures the charitable income, gift, and estate tax benefits.IRC § 170; § 2055; § 2522

Survivorship (Second-to-Die) ILIT

Married couples using unlimited marital deduction defer estate tax to the second death. A survivorship policy pays when the tax is owed — typically at lower combined premium than individual coverage. Standard ILIT mechanics apply.IRC § 2056; § 2042

SC Creditor-Protected Beneficiary Structures

Policies structured to maximize SC’s creditor exemption under § 38-63-40 — primary benefit to spouse, children, or dependents. Particularly useful for business owners with personal-guarantee exposure or professional-liability risk.SC Code § 38-63-40 / § 38-63-50

Why Attorneys Send Us Their Clients

The Broker Who Reduces Your Malpractice Risk,
Not the One Who Adds to It.

  • We read the trust before we apply. Ownership, beneficiary, trustee signing authority, Crummey-cycle timing — matched to the drafted structure, not guessed.
  • We place new ILIT policies through the trust from day one. No existing-policy-assignment trap under § 2035. If the client insists on transferring an existing policy, we flag the 3-year risk in writing for your file.
  • We understand Connelly. Entity-purchase buy-sell reviews. Transitions to cross-purchase or insurance LLC. § 101(a)(2) sequencing coordinated with the attorney and CPA.
  • We design § 7702 structures correctly. 7-pay limits respected. MEC dates clearly identified. Carrier illustrations reviewed before commitment. No “max-fund at all costs” at the expense of tax character.
  • We coordinate with the CPA on § 162 reasonable-comp analysis. Bonus deductibility depends on total-comp benchmarking. We place the policy; the CPA signs off on the tax analysis.
  • We give realistic underwriting timelines. 2–6 weeks standard, 6–12 weeks for impaired risk or large face. No “48-hour placement” retail marketing claims you can’t rely on.
  • We deliver file-ready documentation. Declaration page, in-force illustration, beneficiary confirmation, premium schedule — to your office, when your paralegal needs them.
What we do NOT do

We do not draft trusts, buy-sells, or operating agreements. Legal drafting is the attorney’s work. We place the insurance inside the structure the attorney drafted.

We do not give tax advice. Reasonable-compensation analysis under § 162, MEC status under § 7702A, transfer-for-value analysis under § 101(a)(2), estate-tax sizing — we identify the issues and defer to the CPA or tax attorney.

We do not interpret the trust. Crummey powers, HEMS standards, trustee discretion, decanting rights — our job is to make sure the policy fits the structure you drafted, not to tell you whether the structure is sound.

We do not market investment products or securities. Life insurance is an insurance contract. When a policy includes market-linked features (variable, IUL), we disclose the nature of those features and the carrier’s illustrations.

What SC Estate, Trust & Business Attorneys Ask

Questions We Hear on Introduction Calls

Not Legal or Tax Advice. Responses are general informational answers about insurance placement practice, not legal opinions or tax conclusions. Every matter turns on specific facts; independent legal and tax judgment controls.

The trust must be fully executed and have a taxpayer ID before the insurance application is signed. The trustee signs the application as owner. The trust pays the initial premium from funds the grantor gifted (with the Crummey cycle run by the trustee). The insured individual never holds the policy — the trust is the original applicant, owner, and beneficiary. This avoids the § 2035(a)(2) three-year clawback entirely because there is no transfer of an existing policy from the insured.

If the client has an existing policy they want inside the ILIT, we flag the 3-year risk explicitly for the attorney’s file and document the client’s informed acknowledgment. Some clients accept the risk; some prefer a new trust-owned policy running alongside. That’s an attorney-client conversation, not an insurance decision.

On June 6, 2024, the Supreme Court unanimously held in Connelly v. United States, 144 S. Ct. 1406, that life insurance proceeds received by a closely held corporation to redeem a deceased shareholder’s stock are an asset of the corporation includable in its date-of-death value under § 2031 — and the redemption obligation does not offset the inclusion. This rejected the Eleventh Circuit’s reasoning in Estate of Blount, 428 F.3d 1338 (11th Cir. 2005).

Practical consequence: for entity-purchase buy-sells funded with corporate-owned life insurance, the insurance proceeds intended to fund the buyout now inflate the decedent’s share value for federal estate tax — potentially adding up to 40% of the proceeds to the estate tax bill. Cross-purchase and insurance LLC structures place the proceeds outside the entity and avoid the inflation.

No. OBBBA permanently set the unified estate, gift, and GST exemption at $15M per individual ($30M per married couple) effective January 1, 2026, with inflation indexing from 2027. “Permanent” means no sunset — but Congress can reduce it by future legislation.

For clients above the exemption, the 40% top rate is unchanged and ILITs remain the primary estate-tax liquidity tool. For clients below the exemption, ILITs still provide creditor protection under SC § 38-63-40, asset protection for beneficiaries, blended-family planning, and legacy control — and are insurance against future exemption reductions. SC has no state estate tax, but clients with property in NY, MA, IL, WA, MD, DC or other decoupled states face state-level exposure the federal exemption doesn’t address.

Yes — this is one of the most common referrals. Unfunded ILITs are common in practices where the client got distracted after signing or couldn’t find a broker who understood trust ownership. We contact the client, confirm the trust is current, coordinate with the trustee on the application, and place a policy with the trust as applicant and owner from inception. The Crummey cycle starts with the first premium gift. The structure you designed becomes a funded plan.

The employer pays a deductible bonus to the selected employee under § 162. The employee owns the policy individually and pays the premium. No ERISA plan, no nondiscrimination testing. Selective participation. For retention, a Restricted Executive Bonus Arrangement (REBA) adds a vesting schedule via collateral assignment or endorsement. A double-bonus grosses up the bonus to cover the employee’s income tax so the arrangement is tax-neutral to the employee.

Deductibility depends on total compensation (salary + bonus) meeting the “reasonable compensation” standard under Treas. Reg. § 1.162-7(b)(3). This is a tax analysis — the CPA benchmarks total comp against industry norms and signs off. We place the policy and coordinate with the CPA; we do not render the reasonable-comp opinion.

§ 7702 defines what qualifies as life insurance for federal tax purposes. A permanent policy (whole life, UL, IUL) that passes § 7702 gets the income-tax-free death benefit under § 101(a) and tax-deferred inside buildup. § 7702A sets the 7-pay test: if cumulative premiums in any of the first seven years exceed the 7-pay limit, the policy becomes a Modified Endowment Contract (MEC) and loses favorable treatment on loans and withdrawals — they become LIFO-taxed ordinary income with a 10% penalty before age 59½ under § 72(v).

For high-earning clients who have maxed qualified plans and want additional tax-deferred accumulation, a max-funded non-MEC policy structures the death benefit at the minimum level required to stay under the 7-pay limit — every dollar above that goes to cash value. Living distributions under § 72(e) are taken first as basis withdrawals and then as policy loans, which are not treated as taxable income under current federal law so long as the policy remains in force. The strategy requires a 15+ year horizon, consistent funding, and periodic review. Outstanding loans reduce death benefit and can cause lapse. We review carrier illustrations with the attorney and CPA before any commitment.

Converting an existing entity-purchase structure to cross-purchase involves transferring policy ownership — which triggers § 101(a)(2) analysis. The death benefit becomes taxable to the transferee (to the extent exceeding consideration paid plus subsequent premiums) unless a safe harbor applies: transfer to the insured, to a partner of the insured, to a partnership in which the insured is a partner, or to a corporation in which the insured is a shareholder or officer.

Sequencing matters: if the policies are first transferred into a properly-formed partnership or LLC taxed as a partnership (insurance LLC), the partnership safe harbor under § 101(a)(2)(B) typically applies. We coordinate with the attorney on entity formation timing and with the CPA on tax filings. Getting the sequencing wrong can turn an income-tax-free death benefit into a taxable one. This is where coordinated professional planning matters.

The trustee sends the Crummey withdrawal notice; we do not draft or send it. Our coordination is on the timing: we match the premium due date to the trustee’s notice cycle so the grantor’s premium gift to the trust occurs first, the Crummey notice goes out, the withdrawal window runs (typically 30–45 days), and the trustee then pays the premium from trust funds. Gifts qualify for the § 2503(b) annual exclusion ($19,000 per donee in 2026) when the mechanics are clean.

If carriers won’t hold a premium for the full withdrawal window, we structure the initial seed gift and advance premium funding so the Crummey cycle works without policy lapse risk. Operational detail, but it’s the kind of detail that keeps the annual exclusion intact.

Standard application, healthy insured, no exam: 7–14 days. Standard application with paramed: 3–6 weeks. Large face amount ($5M+), impaired risk, or cases requiring attending physician statements: 6–12 weeks. Ultra-high-net-worth cases with financial underwriting (personal financial statement, business valuation, tax returns): add 2–4 weeks.

We are straightforward with attorneys about timelines because delivery reliability is the foundation of the partnership. A broker promising 48-hour placement for an ILIT-owned policy is either selling a guaranteed-issue product that’s not fit for purpose or has never actually placed one.

We earn commission from the carrier when a policy is placed. Commission is paid by the carrier, not the client, and is disclosed on every application. We are an independent brokerage — no captive carrier relationship means no incentive to place a specific product over another. Our referral model is reciprocal: we refer insurance placements out to attorneys and CPAs we trust for the legal and tax work they’re best at. We win when the structure you drafted actually works at death.

The Structure You Drafted Is Only as Strong
as the Policy Inside It.

OBBBA raised the exemption. Connelly reshaped buy-sell planning. SC’s 2025 Trust Code update refined grantor-trust mechanics. Wolf Financial keeps up with the framework — and places policies that work inside it.

Wolf Financial is a licensed insurance brokerage, not a law firm or CPA. Nothing on this page is legal or tax advice.

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Important Disclosures & Compliance Notice

Not Legal Advice. Wolf Financial is a licensed independent insurance brokerage. It is not a law firm and its principals and representatives are not licensed to practice law. Nothing on this page — including statutory references, case citations, discussion of the Internal Revenue Code, Treasury Regulations, estate and gift tax doctrines, trust drafting concepts, or business-entity structures — constitutes legal advice, a legal opinion, or a substitute for independent legal research and judgment by licensed counsel. No attorney-client relationship is created by reviewing this page, submitting the partnership inquiry form, or communicating with Wolf Financial.

Not Tax Advice. References to the Internal Revenue Code (including IRC §§ 101, 152, 162, 264, 1041, 2010, 2031, 2035, 2042, 2056, 2503, 2601, 2631, 2703, 7702, 7702A, 72(e), 101(j)), Treasury Regulations, and judicial decisions are for general informational discussion only. Wolf Financial does not provide tax advice. Estate and gift tax consequences, income tax treatment of policy distributions, grantor-trust taxation, reasonable-compensation analysis, transfer-for-value analysis, and Modified Endowment Contract status all depend on specific facts and require review by the client’s licensed tax professional (CPA, enrolled agent, or tax attorney).

Not Financial, Investment, or Securities Advice. Life insurance policies are insurance contracts, not investments or securities. Discussion of whole life, universal life, indexed universal life, and variable products describes contractual features. Variable products, where sold, are securities offered through a registered broker-dealer by appropriately licensed representatives; nothing on this page constitutes an offer, solicitation, or recommendation of variable securities products. Indexed Universal Life policies credit interest based on a market index but are not invested in the market; index crediting is subject to caps, participation rates, and spreads that may be adjusted by the carrier; policy charges, cost of insurance, and administrative fees reduce cash value regardless of index performance. The 0% floor on an IUL credits interest only and does not protect against policy charges.

OBBBA & Exemption Disclosures. The One Big Beautiful Bill Act (H.R. 1, signed July 4, 2025) amended IRC § 2010(c)(3) to set the basic exclusion amount at $15 million per individual for decedents dying and gifts made after December 31, 2025, indexed for inflation from 2027. “Permanent” reflects the absence of a sunset date in the statute as enacted; future legislation may modify or repeal the provision. Portability of a deceased spouse’s unused exclusion under § 2010(c)(4) requires timely filing of Form 706. The 40% top estate tax rate is unchanged. South Carolina does not impose a separate state estate or inheritance tax; clients with property or domicile in states that do (including NY, MA, IL, WA, MD, DC, among others) face state-level exposure regardless of federal exemption levels.

ILIT Disclosures. Exclusion of life insurance proceeds from the insured’s gross estate under IRC § 2042 requires that the insured hold no incidents of ownership (as defined in Treas. Reg. § 20.2042-1) in the policy at death and that proceeds not be payable to or for the benefit of the estate. Under IRC § 2035(a)(2), a transfer of an existing policy to an ILIT within three years of the insured’s death causes the death benefit to be pulled back into the gross estate. Annual exclusion qualification under § 2503(b) ($19,000 per donee in 2026) requires properly administered Crummey withdrawal powers. Failure to administer Crummey notices, retention of incidents of ownership, or transfers within the three-year lookback may result in estate inclusion regardless of trust design.

Connelly Disclosures. References to Connelly v. United States, 144 S. Ct. 1406 (2024), summarize the Supreme Court’s unanimous holding that life insurance proceeds received by a closely held corporation to redeem a deceased shareholder’s stock are included in the corporation’s value for federal estate tax purposes under § 2031, with no offset for the redemption obligation. The decision rejected the reasoning of Estate of Blount v. Commissioner, 428 F.3d 1338 (11th Cir. 2005). Alternative structures (cross-purchase, insurance LLC) involve their own income tax, partnership tax, and transfer-for-value considerations under IRC § 101(a)(2) that require legal and tax analysis specific to the facts.

§ 7702 & MEC Disclosures. A life insurance contract qualifies for income tax treatment under § 101(a) only if it satisfies IRC § 7702. Modified Endowment Contract classification under § 7702A occurs when cumulative premiums exceed the 7-pay limit; MEC distributions (including policy loans) are taxed LIFO as ordinary income under § 72(e)(10) with a 10% additional tax under § 72(v) for distributions before age 59½. Non-MEC policy loans under § 72(e) are not treated as taxable distributions under current federal tax law, but outstanding loans reduce cash surrender value and death benefit. A lapse of a non-MEC policy with outstanding loans exceeding cost basis produces ordinary income to the extent of the excess. Max-funded cash-value strategies require long-term commitment (typically 15+ years for material accumulation) and consistent funding; early surrender may produce significant loss due to surrender charges and cost of insurance. Tax treatment is based on current federal tax law and is subject to change by future legislation.

§ 162 Executive Bonus Disclosures. Deductibility of bonus compensation funding a life insurance premium under § 162 is contingent on total compensation meeting the “reasonable compensation” standard under Treas. Reg. § 1.162-7(b)(3). Bonus amounts are taxable to the employee as ordinary income. Policies placed under a § 162 arrangement are owned by the employee; employers have no right to policy values unless secured by a collateral assignment (REBA). Restricted Executive Bonus Arrangements involve additional legal and tax considerations that should be reviewed by counsel and CPA.

Statutory & Case Citation Index. Citations referenced include: Internal Revenue Code §§ 101, 152, 162, 170, 264, 1041, 2010, 2031, 2035, 2042, 2055, 2056, 2503, 2522, 2601, 2631, 2703, 7702, 7702A, 72(e), 72(v), 101(j); Treasury Regulations §§ 1.162-7(b)(3), 20.2035-1, 20.2042-1, 25.2703-1. South Carolina Code Title 33 (Business Corporations & LLCs); Title 38 Chapter 63 (Individual Life Insurance — §§ 38-63-10, 38-63-20, 38-63-40, 38-63-50, 38-63-100); Title 62 Article 7 (SC Trust Code — including §§ 62-7-411 through 62-7-417, 62-7-502, 62-7-505, 62-7-813, 62-7-816, 62-7-816A, 62-7-1005A). Cases: Connelly v. United States, 144 S. Ct. 1406 (2024); Estate of Blount v. Commissioner, 428 F.3d 1338 (11th Cir. 2005); Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968). OBBBA (H.R. 1, 119th Cong., signed July 4, 2025). SC Act No. 25 (H.3432, effective May 8, 2025) enacting § 62-7-816A. Citations are general references as of the page update date; statutes and case law are subject to amendment, regulatory interpretation, and judicial reinterpretation. Attorneys are responsible for confirming current status and applicability to specific facts before relying on any citation.

Insurance Coverage Disclosures. All life insurance coverage placed by Wolf Financial is subject to underwriting approval by the issuing carrier. Policies contain exclusions, limitations, contestability periods (typically two years), suicide exclusions, misrepresentation provisions, and other terms set forth in the issued contract. Applicants should review policy documents carefully before acceptance. Premium estimates referenced on this page are illustrative only and are not binding quotes; actual premiums depend on age, health class, face amount, policy type, term length, carrier underwriting decisions, and other factors. Placement timelines vary with underwriting complexity and are not guaranteed. Wolf Financial earns commission from issuing carriers when policies are placed; commissions are paid by the carrier and disclosed on each application.

Referral Arrangements. Wolf Financial’s referral partnership with attorneys is a reciprocal professional relationship. Wolf Financial does not pay referral fees to attorneys for client referrals and does not accept referral fees from attorneys. Arrangements between attorneys and Wolf Financial must comply with the South Carolina Rules of Professional Conduct, including Rules 1.7, 1.8, 5.4, and 7.2, and any applicable insurance regulations under SC Code Title 38 and SC Department of Insurance regulations. Wolf Financial also adheres to SC Code § 38-63-10 (prohibition of misrepresentation) and § 38-63-20 (prohibition of misleading comparisons) and SC Code § 38-57-130 (anti-rebating). Attorneys and CPAs are responsible for their own compliance with applicable rules of professional conduct.

No Warranty. Wolf Financial makes no representation or warranty, express or implied, regarding the accuracy, completeness, or current status of any legal or tax information referenced on this page. Information is provided “as is.” Illustrative figures (including the ILIT sizing illustration) are hypothetical and simplified, do not reflect all features, risks, or costs, and do not account for all deductions, credits, state taxes, or fact-specific considerations that may apply. Wolf Financial disclaims all liability for any use or reliance on this page’s content except in the direct provision of insurance brokerage services under a written producer agreement.

Wolf Financial · Licensed Independent Insurance Brokerage · SC Producer License #21594481 · Joseph Wolf, Partner · 4330 Augusta Rd, Lexington, SC 29073 · (803) 721-2667 · wolffinancialsc.com