Short Term Reversionary Trust
Definition of "Short term reversionary trust"
Financial instrument established irrevocably for a minimum of 10 years, after which the principal reverts to the grantor upon termination of the trust. A key feature is that earnings from the principal traditionally have been taxed at the beneficiary's tax rate instead of the presumably higher tax rate of the grantor. An example is the CLIFFORD TRUST commonly used to save for a child's college expenses. Another example is the funded irrevocable LIFE INSURANCE TRUST. Under a typical arrangement, a grandparent might establish such a trust to fund premiums for permanent insurance on the life of a son or daughter, with the grandchildren as beneficiaries. At termination of the trust, the grandchildren would have a fully paid policy on their parent's life, and the trust assets would revert to the grandparent. Congress curtailed the tax advantages of short-term reversionary trusts in the Tax Reform Act of 1969 and again in the TAX REFORM ACT OF 1986.
Popular Insurance Terms
Provision that holds a re-insurer liable for its share of losses even if the ceding company becomes insolvent before paying these losses. For example, XYZ Insurance Co. writes a fire policy ...
Canadian retirement plan much like U.S. individual retirement account (IRA). Here, an employee can contribute on a tax deductible basis C $3500 each year as a member of an employer pension ...
Buying a home or investing in a commercial property in the United States implies complex legal clauses. Perhaps one of the most perplexing ones is the noncontribution mortgage clause. If ...
Forced entry into premises. Coverage is provided under various property insurance contracts such as homeowners and special multiperil insurance (SMP). ...
Protection to maintain the value of a business in case of death or disability of a partner. Upon the death or long-term disability of a partner, insurance can provide for the transfer of a ...
Type of derivative traded on the Chicago Board of Trade that takes the form of an option on a catastrophe futures contract using a call-option spread as the basis for the contract. The ...
Plan initiated by the pension benefit guaranty corporation (PBGC) upon the involuntary termination of a pension plan. With the concurrence of the United States District Court, the PBGC ...
Automatic protection for an insurer against losses that exceed a predetermined loss limit. This reinsurance may be subdivided into three primary types: excess of loss, catastrophe loss, and ...
Form that provides insurance coverage for the insured in the event the damage or destruction of non-owned property reduces or terminates the insured's earnings. For example, if the insured ...
Have a question or comment?
We're here to help.