If you want to buy a lawsuit, or bequeath one to your heirs, buy a life insurance policy and immediately transfer it to someone who will pay you for it. The purchaser from you will pay the premiums. If the policy is sufficiently large, when you die, the insurance company will sue the purchasers, your estate will sue the purchasers and the insurance company, and people may have an additional reason to mourn your death.
"STOLI" has nothing to do with the Russian beverage, which is a pity, you will agree. "Stranger-Owned Life Insurance" is a program created a few years ago. Someone suggests to a senior that if he will buy insurance on his life, they will then buy the policy from him. The purchaser will collect the life insurance proceeds.
Insurance companies do not like STOLI, because they depend upon a certain amount of policy lapses to keep costs down. Policies which someone has bought for investment purposes are not allowed to lapse, so this skews the actuarial results.
Insurance companies fight the use of STOLI by attempting to deny insurance in the first place, and then, when the insured dies, asserting that the policy is void because it was not actually acquired for insurance purposes, and refusing to pay the policy proceeds. In some states legislation has been passed making STOLI policies void.
Arthur Kramer bought insurance policies with a face value of $56,200,000. He immediately sold them to a consortium of investors for about $750,000. He died soon after, and his widow sued the insurance companies and the investors, claiming that the policies violated New York's insurability interests requirements intended to prevent life insurance being turned into a gambling contract, and therefore the policy proceeds belonged to the estate. This case will be in court for a few years, and generate lots of anguish and attorney's fees.
I would not want someone to have a 56 million dollar interest in my dying. I would have my Siamese cat, Henry, taste all my food first. On the other hand, I think too much of Henry - I would not participate in the STOLI scheme in the first place. You should not do so either.
