Medical, Medicare, P-n-C, and comm ins. agent at Acrisure/Greatlakes ins Agency
Answered 2 years ago
One of my best friends dad had 4 grandchildren that he thought the world of so in his estate he had 4 -$50,000.00 death benefit whole life insurance policies. About 6 years before the policies would have been paid up he passed away. Each of the policies had one of the 4 grandchildren named as beneficiary and if they were a minor had a co-beneficiary named/ the executor of the estate until of legal age. At the time of passing the youngest grandchild was 20 years old each policy had a note “to help get you started in this great life, pay it forward” We all know life insurance proceeds are tax free / Non taxable and 2 of the 4 grandchildren used the money to set up an IRA and a annuity for their future.
Taxes can devastate an estate. In some cases, where the estate will be liquidated, the estate tax, while not pleasant, is what it is. But in some situations, like, for example, when a family wants to keep a farm in the family, estate taxes can destroy that possibility. Farmers who bought their land over the past six or seven decades may have paid $500 an acre or less. Suddenly, land is far more valuable than it ever has been. Even though farmers aren't making a lot of money every year, their land value makes them seem "rich" to the government. Children who want to continue farming the land often aren't able to because they have to sell the farm to pay the taxes. That's where life insurance can make a huge difference. Life insurance settlements aren't taxable. But they can be used to pay estate taxes. If you have a life insurance policy that is high enough to cover the taxes due on an estate, you can plan to keep that estate in your family and won't risk essentially losing it to the government.
Securing Legacy: The Role of Life Insurance in Estate Tax Planning Life insurance can be a vital tool in estate tax planning, offering a strategic way to manage financial obligations that arise after one’s death. Let's consider a realistic scenario involving a client named Alex. Alex, 55, has built a substantial estate valued at $15 million, including investments, real estate, and a family business. With federal estate taxes applied to estates over $12.06 million (as per the 2022 IRS threshold), Alex faces significant potential estate taxes that could greatly reduce the inheritance meant for his beneficiaries. To address this, Alex purchases a permanent life insurance policy with a $5 million death benefit. The annual premium for this policy is about $70,000. The policy is designed to ensure the proceeds are payable directly to an irrevocable life insurance trust (ILIT), keeping them out of the taxable estate. When Alex passes away, the trust receives $5 million tax-free from the life insurance policy. These funds cover estate taxes, legal fees, and other related expenses without needing to liquidate any estate assets. This strategy preserves the estate’s value, ensuring that Alex’s real estate holdings and family business can be passed on to his heirs without a forced sale to meet tax obligations. In this example, life insurance provides a liquidity solution and safeguards the estate’s value, ensuring Alex’s financial planning benefits his family as intended. This approach highlights the powerful role life insurance can play in comprehensive estate tax planning. Best, Zaher Dehni, EA CEO at Taxfully http://www.taxfully.com