Test Magazine Title March 2013

volume 31, number 3 assets a business, tax, and financial newsletter Life Insurance: Policy Ownership Considerations w hile it is common to think of life insurance planning in terms of type and amount of coverage, a more complete analysis also includes policy ownership. In many cases, the proceeds of a life insurance policy may be unnecessarily included in your estate—unless you plan ahead. Taking Estate Taxes into Account Without insurance, many estates fall below the level at which they will be subject to Federal estate taxes. Under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act), the Federal estate tax is reinstated in 2011, with an applicable exclusion amount of $5 million. Estates that exceed this amount are subject to Federal estate taxes at a maximum tax rate of 35%. The proceeds of life insurance can increase the value of your estate to a level where it will become subject to Federal estate tax. Fortunately, you can prepare for the possibility of Federal estate taxes. There are two ways to keep insurance proceeds out of your estate: 1. Transfer ownership of your insurance policies to someone else, generally your beneficiary(ies). 2. Transfer the policies to a trust. in this issue: How Charitable Giving Can Really Pay Off The Power of Networking Estate Tax Update: Changes from the 2010 Tax Relief Act Either option, if done properly and in a timely manner, can decrease your Federal estate tax. You may not need to worry about changing ownership of a policy that names your spouse as the sole beneficiary. The unlimited marital deduction allows your spouse to inherit the policy proceeds without estate taxation. However, you may benefit from transferring your policy out of your estate if the purpose of the insurance is to help pay estate taxes or provide for heirs other than your spouse. The paperwork involved in changing insurance policy ownership is relatively simple. However, you do have to sign away all rights to your policies, which means the gift must be absolute and irrevocable. You cannot change your beneficiaries, and in the case of policies with cash value, you no longer have the right to borrow against them or surrender them for their worth in cash. continued on page three