Estate Planning and Life Insurance article:
Life Insurance has long been a way to protect your family should something unforeseen or catastrophic occur. The proceeds of a life insurance policy can go a long way to replacing the loss of income of a loved one and allow the family members to carry on their ongoing financial obligations without stress or duress. It is always painful to lose a loved one, but not having worries about day-to-day expenses is a huge relief. As we grow older the traditional view was that there should be less of an importance placed on life insurance; the kids are now becoming more independent, they don’t require our support as much financially, and the debt and obligations are vastly diminished.
Today I would argue somewhat differently. As we age, life insurance is no longer solely about protecting our loved ones, but more about protecting our wealth, what we worked so hard to achieve over the years. We must look at life insurance through a different lens as today is an important tax tool that can help mitigate the ever-rising tax burden that we face.
I am spending a good deal of my time planning with clients who have a corporate structure, such as Holding Companies, Trusts, etc. The common consensus seems to be that the next generation will be saddled with a huge tax bill once both parents are no longer living. The estate of their parents will be greatly diminished by the taxes that are owed. Worse, without careful planning, there is a danger of double taxation to an estate. Life Insurance has become the most talked about and recommended solution to offset the impact of the future tax burden both for corporations and individuals. One of the strategies we employ is Joint and Last to Die Coverage. Essentially, we cover both the husband and wife for a predetermined amount and the Life Insurance Benefit is payable on last death, thereby producing the funds necessary to pay the taxes on the estate. This strategy is particularly advantageous to those who have Holding companies as a significant portion of the death benefit in any given year will be paid out through the Capital Dividend account tax free. In simple terms we are using corporate dollars, retained earnings, to purchase a corporate life Insurance policy which will largely be paid out to the estate tax free at life expectancy. It is a great deal, and it makes sense especially when you look at the internal rate of return of the death benefit. If this is structured properly it could save hundreds of thousands of dollars of taxes to an estate. Remember, life insurance leverages the purchasing power of your dollar. You are paying a premium which is far less than the eventual payout of the face value of the policy. This strategy is becoming even more popular in light of the new Capital Gain changes which negatively affect corporations.
The bottom line is there are things you can do to help reduce the impact of taxes, and we can help.
