Maintain surviving family's lifestyle - life insurance death benefits may help by paying off debt and providing a lump sum of cash from which your family can draw in the event of your death.
Divide and distribute your estate equitably - for example, if you have someone who will be the heir to your business that is worth a couple million dollars, you could provide another heir with a couple million in life insurance death benefit proceeds.
Reduce or eliminate gift and estate taxes1 - for example, a member of senior generation transfers their residence at a reduced gift tax cost to a Qualified Personal Residence Trust (QPRT) and retains the right to live in the residence for a specified term; the residence eventually passes to the junior generation without any additional gift tax - as long as the grantor survives the specified retained term; junior generation purchases life insurance policy insuring senior generation to insure against the risk that the residence may be brought back into the grantor's estate if the grantor dies during the retained term. Similar programs can be set up for Grantor Retained Annuity Trusts (GRATs), Family Limited Partnerships (FLPs), Private Annuities and many others.
Solve liquidity needs - to pay for administrative costs, gift taxes and estate taxes. Oftentimes, estates are composed of illiquid property or property such as collectible artwork, jewelry and other family heirlooms that heirs may not wish to sell to pay expenses. Life insurance can be used to provide the necessary liquidity to pay the expenses associated with your estate.
The above examples are only the tip of the iceberg. There are many more ways in which life insurance can be used to help solve issues associated with estate and gift taxes. Only a professional can help you determine which planning techniques are appropriate for your situation. So, it is important to work closely with a life insurance professional, legal counsel, and/or a CPA.
1 The federal estate tax exemption amount is $3,500,000 in 2009. The highest federal estate tax rate is 45% in 2009. The federal estate tax will be repealed on 1/1/10 until 12/31/10. Beginning 2011, the federal estate tax will be reinstated with a federal estate tax exemption amount of $1,000,000 and a maximum estate tax rate of 55%. Congress continues to discuss and consider legislation that, if passed, would permanently repeal or otherwise lessen the impact of the federal estate tax.
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This material may only be used in New York.
For more information on this subject, and professional guidance in selecting the right kind and amount of insurance coverage, contact your insurance professional.
This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state or local tax penalties. This material is written to support the promotion or marketing of the transaction(s) or matter(s) addressed by this material. Pacific Life & Annuity Company, its distributors and their respective representatives do not provide tax, accounting or legal advice. Any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
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