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Daily Court Reporter - News Life insurance policies preserve wealth, ease the benefactor's financial burden


Life insurance policies preserve wealth, ease the benefactor's financial burden

KEITH ARNOLD, Daily Reporter Staff Writer

Life insurance death-claim payouts should abate the financial burden of high-net-worth individuals who wish to pass on their assets to their children in light of the estate tax cuts in the landmark tax recently signed into law.

The coupling of such payouts with estate tax cuts should help ensure that assets remain in the family after the person has passed on.

Online financial services resource provider reported the circumstance frees up finances - whether it is from what they earned or inherited - to be turned into future investments in real property, businesses, stocks or bonds.

The new tax law will allow the exemption for estate taxes to increase from the current limit of $5 million to approximately $11 million, allowing families to double their maximum exemption from $10 million to in excess of $22 million.

Certified Financial Provider Thomas Archer said, though an outright elimination of the federal estate tax was preferred by the most supporters of the tax cut, large enough life insurance policies can pay the estate taxes.

"Keep in mind that, under the latest bill, the new taxable threshold is guaranteed only until 2025, when it will be reset to the current $5 million individual threshold and indexed for inflation," Archer wrote for the online publication. "For families whose net worth is below the new threshold, they may not need to worry as much about having the funds available to pay the inheritance tax on a family property, such as a business or a vacation home.

"But, this could all change again in seven years."

He explained that a family with a net worth of $100 million, each parent gets to exempt the first $11 million in assets from their estate taxes for a total of $22 million.

The remaining $80 million would be subject to a combined tax rate of about 40 percent, leaving a $30 to $40 million tax bill to their children.

"To preserve their assets for their children, the family will purchase a $30 to $40 million second-to-die life insurance policy," Archer continued. "How does this work out?

"The family only pays the premium for the policy, which is substantially less than the death benefit. When they pass on, a special trust for the benefit of the children will receive a check from the insurance company.

The check, thus, would be used to pay the federal estate tax.

"Not a penny of the inheritance will be touched if properly structured," he wrote.

Archer expected that more than 3,000 high-net-worth families would benefit nationwide from development and the overall financial benefits are likely for the near future.

Date Published: January 19, 2018


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