The death of your loved ones is never an easy issue to face, and settling the estate can add considerable stress to an already difficult time. To help prevent financial burdens, use life insurance to leverage tax payments for an estate.
- Compile a team of lawyers, accountants, and other financial professionals who are knowledgeable in transferring wealth and the consequences of such actions. This is for estate planning purposes. These are the experts and they know what they are doing, so hire only the best.
- You will need to generate a financial plan for your immediate family. This includes retirement income for you and your spouse and the transfer of assets to your children and/or friends and family. Keep in mind, you can't use the current value of the estate. You must consider what the expected value will be when the surviving spouse would pass.
- Your team of professionals will be able to help reduce the projected and expected value of the estate, and they will be a huge help in this area. They have probably done this before and know what to do.
- Create an Irrevocable Life Insurance Trust. An Irrevocable Life Insurance Trust is designed to own and possess all incidents of ownership of one or more policies of insurance, typically on the life or lives of senior generation family members, in order to avoid having the death benefits subjected to federal estate tax.
- If you do not transfer ownership of cash to the Irrevocable Life Insurance Trust, you will not be removing the death benefits from the estate.
- Apply for a life insurance policy for the projected amount of estate taxes. Do this after the death of the surviving spouse. This will make the Irrevocable Life Insurance Trust the owner and beneficiary of the policy.
- Give a routine tax exempt gift (money) to the Irrevocable Life Insurance Trust. Annually is a good amount of time between gifts. The trustee of the Irrevocable Life Insurance Trust will then make an annual premium payment for the insurance policy.
- Pay estate taxes at the death of the second spouse using the income tax-free death benefit of the life insurance. The income of this is usually larger than that of the total amount of premiums paid.
This process can be a draining experience, but if done properly it will help you out in the end. Hire the best professionals you can afford; the better the professionals, the easier this experience will be on you.