Published by Mark Petersen
Do you own a family farm or privately held business which you would like to keep in the family? A survivorship policy works well and may be recommended to create estate tax liquidity when a significant taxable estate value is held in one or more illiquid assets. Fair value may not be realized by having to sell illiquid assets quickly to pay an estate tax liability, which is due 9 months after a surviving spouse’s death.
Survivorship, also known as “second to die” life insurance, is based upon two lives instead of one –typically a husband and wife. Premiums are paid until the second spouse dies, at which time the death benefit is paid to the beneficiaries of the survivorship policy. If the policy is owned by an Irrevocable Trust and the trust is the beneficiary of the policy, the death benefit may not be taxable in the insured’s estate and also may not be subject to income tax.
A survivorship policy also works well and may be recommended to create potentially tax-free funds for children to replace the value of assets given to charity by a decedent. Gifts to charity are tax deductible by the estate. This will help to minimize a taxable estate value and thereby reduce the estate tax liability. However, gifting assets to charity decreases the amount available to leave the heirs. A survivorship policy death benefit may serve to replace the estate value and create a guaranteed amount of inheritance for heirs.
Family finances change over time, as do parents wishes to provide for their children and grandchildren. It is therefore important to plan over a lifetime to understand how changing circumstances may impact your financial plan and future liquidity needs. The Wealth Enhancement Group is available to help you understand if survivorship life insurance is right for your Wealth Plan goals.