Payments on estate tax can take a chunk out of a person’s wallet, especially if their estate is worth millions. Purchasing life insurance to pay for estate tax is a safe bet for those with tangible assets. Coverage for your estate can benefit your beneficiaries upon the time of your death. That way they are not stuck with the amount of taxes left over once you die. There is a way to go about planning for such an event. Buying life insurance to pay for your estate taxes should be carefully planned.
First you should put a team together that will help you create the perfect plan for paying for your estate taxes. That would include an attorney, an accountant, and a professional in financing who are all experienced with taxes and wealth transfers. Next would be a financial plan for you, your spouse, and your remaining family. This would include a retirement income for both you and your spouse. Then you would have to configure how much should go to your spouse in the event of your death or vice versa. This value should be how much you think the estate would be worth at the life expectancy of the surviving spouse. Lastly, you would have to come up with a figure that would include the assets and the amounts that would be transferred to your children, the beneficiaries.
Every person involved with the estate and its value should be configured at his or her expected life expectancy. Then an Irrevocable Life Insurance Trust (ILIT). All life insurance policies should have their ownership changed to the ILIT so that their death benefits would be removed from the taxes accrued from the estate. This allows a life insurance policy to be purchased in the amount of the estate taxes. The second-to-die policy would be in effect after the surviving spouse died therefore making the ILIT the sole owner and beneficiary of the new policy.
Lastly, a yearly tax should be given to the ILIT. The trustee then will make the annual premium payment for the life insurance policy. Then comes the part where the estate taxes are paid off. They are paid at the time when the second spouse dies. The taxes are paid with income tax free death benefit from the life insurance policy. The death benefit is usually much, much higher than the total sum of all of the premiums that were paid.
All that you must do to help pay for your estate tax is plan ahead. This involves creating a well-experienced team and a carefully thought out plan for the future. This helps your beneficiaries after you die with the estate and the taxes involved. When planning to buy life insurance for this type of action, make sure that you pay attention to any new legislative laws. A little tip would be to find a life insurance policy that covers two people. This way you are involved with two separate insurance plans. The overall premium could cost you more.