Question

1. James pearson, as part of his estate planning, assigned his $100,000 group-term life insurance policy to his brother. James’s employer provided for only $50,000 of coverage; therefore, the brother paid for the premiums on the supplemental insurance. James did not include in gross income the premiums for the supplemental insurance. James’s accountant challenged him on this arrangement. Who prevailed?

2. Pete and Linda received a divorce in 2010. During the year, Pete contributed $950 support for their only child in the custody of Linda. Absent any written agreement relative to considering the child as a dependent, who should be entitled to consider the child?

Answer 1

Ans 1. James pearson had assigned his $100,000 group term life insurance policy to his brother. James's employer provide for only $ 50,000 of coverage and any increase in coverage, f permitted had to be borne by the beneficiary (James). Since James had assigned the same to his brother, his brother took the tab.

Now, we have to understand premium payment, for additional coverage is not income of James which he has earned from the employer. His brother has put in that premium. and the benefit of the policy is also assigned to his brother. Hence there is no earnings in the hands of James, which can be considered as part of James income.

Under the above circumstances James accountant has no reason to object. James arrangement is fine.

Ans 2. Pete and Linda received a divorce without any written mandate on dependency of their child. In the absence of any such arrangement, the person in whose custody the child is living is entitled to maintenance in accordance with their life style. Care has to be taken that the child should be dependent to the parent. In case the child is minor and dependent on the parent (Linda), Linda will be entitled to maintenance allowance which is reasonable based on their lifestyle.