“Nothing is certain except death and taxes”
Although Benjamin Franklin uttered these famous words in 1787, they are all too true for us today.
In April, in the Unites States, folks all ponder taxes, and believe me, these are NOT pleasant thoughts!
But when one dies today, in our country, what estate taxes will their heirs be burdened with?
One unique way to reduce the bitter sting of taxes due upon death is to use life insurance as part of a well-reasoned Estate Plan.
Federal Estate Tax Exemption for 2015
It’s true, that with the current 2015 exemption of 5.43 million per person, only the wealthy need worry about Federal Estate Taxes – but at a whopping 40% tax rate, the wealthy should certainly make plans well in advance so their estate is not decimated by Federal Estate taxes!
If you are in this category, you don’t need me to tell you, as your attorney and accountant will have discussed these issues with you often.
However, if you have not yet utilized Life Insurance to help offset the impact of taxes on your estate, now would be a good time to consider it.
You will never be younger than you are today, so the cost for Life Insurance to protect your estate will never be lower.
Estate Tax Considerations for Spouses
If you are married, then a Second-to-Die policy might be right for you – and is more cost-effective than two individual policies. Since no Estate Taxes are imposed until after the second spouse dies, this unique policy can make perfect sense.
Your attorney or tax professional will probably suggest an ILIT, which is an Irrevocable Life Insurance Trust that will purchase and own the life insurance policy so you will have no Incident of Ownership.
In this way, the death benefit will be kept out of your gross estate, leaving the funds available to pay your estate taxes.
Your non-liquid assets, such as stocks, bonds and real property won’t have to be settled in a “fire sale” atmosphere, and so more of their value will be left intact. You may opt to use your annual gift-tax exclusion to fund the trust, knowing that those funds can only be used for untouchable Life Insurance premiums.
State Estate Taxes
Even though Federal Estate Taxes are only a concern of the rich (5.43 million in assets are exempt from Federal Estate Taxes, or 10.86 million for a married couple) bear in mind that State Estate Taxes are still demanded in many states.
Some states also impose Inheritance Taxes on most heirs. Though many states are relaxing their estate tax guidelines, according to Kiplinger’s, at least 10 states will exact estate taxes when moderately well-off residents die.
Some states begin to levy estate taxes on inhabitants who die with around 1 million in assets – and with housing values what they are today – thousands and thousands of aging taxpayers will fall into this category.
Again, a Life Insurance policy can be the perfect solution so your heirs won’t be forced to sell off your assets quickly to meet the estate tax obligation.
Before you move to purchase such a Life Insurance policy, it is important to understand how ownership in the policy is a critical determination.
To avoid inclusion in your estate, you need to have no Incident of Ownership – you must not be the owner of the policy, and must have no control over the policy of any kind.
It is also vital to select a strong life insurance company – not necessarily the one with the cheapest rates, but one with a stable history and good credit rating.
Your independent Life Insurance Agent can help you find the right carrier and the right product for your estate planning needs.
Call us today at 877 – 443 – 9467 because we can answer all your questions on how to plan your estate using life insurance!
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