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Kramer Case On Life Insurance Still Ongoing in Court

NY estate planning attorneys argued in court about whether the state law bars individuals from purchasing life insurance policies and selling them right away to investors who earn money after the death of the insured person. The Court of Appeals is left to decide on this question: can someone buy a policy without any intent to protect their loved ones' personal or economic welfare and just sell it to another person?

The Legislature recently amended a law that oversees alleged "stranger originated life insurance" (STOLIs). It keeps intermediaries, who don't have any personal interest in an insured person, from planning in advance for someone to get and transfer a policy to them.

On behalf of her husband, Alice Kramer filed a suit saying her husband assigned her family with two trusts. Their children were named as recipients but were instructed to trade their interests in the trusts to investors for cash instead. Alice Kramer thinks the money should have gone to the estate. NY insurance law typically calls for a recipient to have:

  • An "insurable interest" in the insured person, like a close relative by blood or law;
  • A significant interest through love and affection; or
  • A considerable and lawful economic interest in the insured person's health and safety.

The law also requires that any adult may purchase insurance on themselves for the benefit of any individual, association, corporation, or firm. Some judges wondered if an individual would obtain policies and exchange them on their own interests or if an investor came to the person with the idea. The NY court has yet to resolve the issue.

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