Using Life Insurance to Offset Estate Taxes
When I got my first job, I remember looking at my paycheck as my jaw hit the floor. I ran to my mom complaining about how I worked 10 hours making $5.75 an hour, but there certainly was NOT $57.50 on my check! I’ll never forget the first time I heard it: “Honey, there are only two things that are assured in this life… death and taxes.”
Defining the “Death Tax”
Well, as I’ve grown older, I’ve come to realize the evil truthfulness of that statement. Especially now that they’ve merged into one! At the end of your life, you will be hit with what is known as the “Death Tax.” That’s right… You will be taxed for dying! The death tax, however, is more commonly referred to as the “estate tax.” It is imposed upon ALL assets owned by the deceased individual.
While every situation is different, the tax rates can start at a measly 18% for amounts under $10,000, but will increase incrementally up to a crippling 55% for assets valued over $2,000,000. Now many of us may not have to worry about our assets ever reaching that amount, but they’ll most certainly be above $10,000. Wherever you think you might fall, you need to prepare for this inevitable conclusion and perhaps even encourage your loved ones to do the same.
Life Insurance Lets You Keep What Is Already Yours
Let’s face it. Most of us don’t think about paying the death tax because, well, we’re not really going to be around to pay it. Unfortunately, it instead, falls upon the shoulders of our family members or beneficiaries. Most people will handle this by selling most or all of your estate. This can include house(s), cars, boats, RVs, land, collectibles, even family heirlooms. But what if you purchased many of these items to be kept and enjoyed by your loved ones?
It is suggested that you meet with an estate attorney. It is their responsibility to total a complete list of your assets. After doing so, you may find that, for example you have an estate with a hefty $500,000 tax bill based on your estate value.
Since most beneficiaries may not have amassed the assets to pay such a steep tax bill, it would be wise you to obtain a life insurance policy for the same amount. In other words, if it is your intention that your family keep a particular asset, such as a house or land (instead of having to sell it in order to pay the estate tax), the idea is to assess the value and the appropriate tax bill for the particular property and obtain a term or whole life insurance policy for that amount.
Still, be sure your premiums won’t cost you the entire amount of your payoff. In most cases it won’t, but you may need to shop around, especially if you’re looking for term coverage latter on in life.
By purchasing a life insurance policy in order to cover the forecast of the death tax, you can ensure that your beneficiaries need not carry the burden of covering this hidden expenditure, and that you will be able to properly execute your final wishes should they be meant for your loved ones to enjoy the properties you’ve worked your whole life to secure.
