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Your estate may have to pay taxes if it is worth more than these limits:
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2000 - 2001 2002 - 2003 2004 2005 2006 and later |
$675,000 $700,000 $850,000 $950,000 $1 million |
This will help you calculate how much coverage to buy (to pay for estate tax):
$1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 |
$410,000 $588,000 $1,098,000 $1,648,000 $2,198,000 |
41% 45% 53% 55% 55% |
2nd to die buying tips:
Buy your second to die policy in an irrevocable life insurance trust
so the proceeds are not included in your estate and thus escape both estate and income taxes
Consider transferring ownership of your survivorship policy to another person NOW. Policy transfers made within 3 years of death are void for federal inheritance and usually state tax purposes
Survivorship life is also beneficial if one spouse is in poor health. It can also be much cheaper than two seperate whole life policies because you are waiting longer to get the payout
Only name charities as a beneficiary
of your retirement plan, IRA, savings bonds, unpaid bonuses, lottery winnings, and unpaid rental income. When you die, the
charity will still get the amount you want them to have, and your heirs will not have to pay income tax given from cash or cash equivalents.
Revise your trusts and named beneficiaries, to take full advantage of the gradual increases in the estate tax exclusion, recently enacted.
If your will has a specific dollar amount named, (which many did before 1997), change it too read that the exemption or "marital unified credit" should be in force up to the maximum allowed by law.
Carefully plan gifts, as your recipients will not receive a stepped up basis, as they would for transfers at death.
Consider contributing up to $50,000 into a child's 529, or college education savings plan (keep abreast of the current legislation on this one).
Create a Family limited partnerships or FLIP, which allow you to give away assets now and discount the value for gift tax purposes.
Summary The estate tax has been called a voluntary tax because of the myriad opportunities available to either reduce it or eliminate it completely. If you can't completely get rid of your estate tax, Second to die life is a great way to pay for them. Second to die doesn't have the expiration or get ultra expensive in the later years like term life. You may consider overfunding the policy so that with enough cash value, the payments can be made internally from the interest in the insurance policy. As with most insurance, the death benefits can be paid without federal or state taxes, or the costs and delays of probate. Since your second to die policy shouldn't be going through probate, or be subject to estate taxes, it's confidential and can't be challenged by long lost relatives.
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