Estate Tax Revisited
Federal Estate Tax is not going away. With the 2013 tax cliff legislation, rates have been set at 40% (up from 35%) for amounts in excess of an exclusion amount of $5,120,000 per person ($10,240,000 for a married couple).
Those whose estates exceed this threshold will be back to the drawing board, completing an estate plan that had possibly been put on hold. Now is the time to have a discussion with your attorney about this matter. Be sure to calculate the increasing value of your home when determining your taxable estate.
Life Insurance can provide cash to meet your estate tax obligation!
Over the years, estate planners have used life insurance to provide for liquidity. Estate taxes are due within 9 months from the date of death. Life Insurance proceeds beat the alternative of forced liquidation to meet the tax obligation. With Life Insurance the income tax-free funds are available at the exact time they are needed—death of an individual or of the second-to-die in the case of a married couple. They can also escape all estate tax by establishing an Irrevocable Insurance Trust as the policy owner.
Ask your attorney how much your tax liability will be and then consider life insurance as a way to provide that amount. Below you’ll see what life insurance can accomplish for one couple who require $2,000,000 of guaranteed liquidity for estate taxes.
Policy Type: Second-to-die Universal Life
Death Benefit and Premium Guarantee: To age 121 of the youngest insured
Age and Sex of Applicants: Male, age 65 and Female, age 63
Underwriting Class of Applicants: Both are Preferred Best non tobacco users.
State of Issue: California
Guaranteed Death Benefit: $2,000,000
Guaranteed Lifetime Annual Premium: $21,815
Year Ages Annual Prem Cumulative Prem Death Benefit I.R.R*
10 74/72 $21,815 $218,150 $2,000,000 38.86%
15 79/77 $21,815 $327,225 $2,000,000 20.64%
20 84/82 $21,815 $436,300 $2,000,000 13.02%
25 89/87 $21,815 $545,375 $2,000,000 8.96%
30 94/92 $21,815 $654,450 $2,000,000 6.48%
35 99/97 $21,815 $763,525 $2,000,000 4.84%
40 104/102 $21,815 $872,600 $2,000,000 3.69%
45 109/107 $21,815 $981,675 $2,000,000 2.85%
*Internal Rate of Return is After-Tax
Policy could continue at same annual premium and guaranteed death benefit through policy year 58.
Premiums shown assume both insured’s are in the most competitive underwriting class—Preferred Best and reside in the state of California. Policy shown was available for sale on Jan. 7, 2013 and is subject to change for applicants after this date.
Contact your insurance agent or SelectQuote to see how life insurance might work in your estate plan.
Next, I’ll be returning to some more medical histories that create challenges for getting life insurance.
