Use Life Insurance to Pay Estate Taxes

Category : Insurance

If a couple's estate is in the millions, more of that estate may go to the Federal Government in taxes than to heirs. Leverage tax payments with life insurance.

Create a team for estate planning purposes that consists of an attorney, accountant, and financial professional, all experienced in generational wealth transfer and its tax consequences.

Coordinate the production of a comprehensive financial plan for your immediate family, which includes retirement income for you and your spouse, considerations for the surviving spouse, and the systematic transfer of assets to the next generation.

Focus on the projected estate value at the estimated life expectancy of the surviving spouse.

Exhaust all prudent strategies for reducing that projected value with each of your team members.

Create an Irrevocable Life Insurance Trust (ILIT)

Consider changing ownership of any existing cash-value life insurance policies to the ILIT to remove their death benefits from the taxable estate.

Apply for a life insurance policy in the amount of projected estate taxes at the death of the surviving spouse, making the ILIT the owner and beneficiary of the policy.

Make an annual tax-exempt "gift" to the ILIT, the trustee of which will then make an annual premium payment for the insurance policy.

Pay estate taxes at the death of the second spouse with the income tax-free death benefit of the life insurance policy, which should be many times greater than the sum of the premiums paid.