Life Insurance and Estate Plans - Protecting Your Assets from Estate Taxes

 Estates and estate plans have a mystique all of their own to the average observer. It is certainly a complex world of tax rules and regulations where inherited assets are taxed upon death. How might this affect you and the estate assets you now possess?

 

First of all what is an estate? Simply put it is the total of all of your assets including home, auto, pension and other retirement funds, collectibles and possibly the worth of a business minus liabilities constitutes your estate. Also included in the total estate is any life insurance owned by the estate owner.

 

When you purchase life insurance you own that asset and it becomes part of your estate. As an example, if you were to save $250,000 over your life and you wanted to leave it to your children that would be an asset. By owning a life insurance policy for $250,000 with your children as beneficiary you have created an instant asset; an instant estate. Same result.

 

Estate taxes came into play at the end of the 19th century as a means of redistributing wealth. As a result the estate tax system is now based on a tax on the recipients of the estate (children for example)due and payable within 9 months after the death of the second spouse in a typical family situation. The tax rate is anywhere from 18%-45%. A very large tax bill for anyone to pay.

 

There is a long list of entertainers, actors, singers and business people who did not have an estate plan in place at death. Joe Robbie was the owner of the football Miami Dolphins the year they went undefeated and won the SuperBowl. He was an attorney, sports enthusiast and savvy businessman. But when he died he left behind a huge estate with estate taxes due of over $47,000,000 and no estate plan. His heirs went through a nightmare of contentious family relations as a result and finally sold the football team at a bargain basement price......just to pay the tax.

 

In contrast, Jackie Onassis and Malcolm Forbes through the intelligent use of trusts and life insurance left behind vast fortunes and little to no tax liability.

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