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