Estate Tax Uncertainties Make for Painful Planning

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In order to successfully pass on wealth to family members, individuals who have acquired significant wealth must navigate a hornet’s nest of tax laws. Presently, the estate tax is in limbo — and so are taxpayers subject to it.

The estate tax of 45 percent (on the value of passed-on property above a certain limit) has been suspended for 2010 but returns in 2011. However, no one knows at what rate, or what that certain limit may be.

This means that right now if the value of your estate is above $3.5 million, and you die in 2010, your heirs get the full amount of your estate tax-free. But by contrast, if you die in 2011 or later, the U.S. government may take a large portion your wealth from your heirs.

With the estate tax and related taxes (capital gains, for example) in such a state of disarray, it’s no wonder that many wealthy individuals buy whole life insurance in order to reduce the impact of substantial estate taxes on their heirs.

Whole Life Insurance as a Planning Tool

The uncertainty of income taxes is one reason whole life insurance should be on your radar, especially if you are concerned about estate taxes. Individuals who are subject to the so-called “death tax” may find financial comfort by having a whole life insurance policy in place. This is because whole life insurance can diminish the impact of estate taxes, and allow more money to be passed on – intact — to friends, family, or charitable organizations.

An example of the impact of estate taxes may include a family business that has grown to be worth a lot of money — say $4 million. In addition to the value of the family business, there might be $2 million of hard assets (stocks, bonds, and savings). Losing 45 percent of that wealth may be hard to stomach, especially if it means breaking up the family business to pay estate taxes. A whole life insurance policy might be beneficial in this situation, as it would help the family pay taxes, funeral expenses, fees related to trusts and will resolution, and other death-related costs.

To protect your family, and the wealth you may pass on to them, compare whole life insurance rates. Remember, tax laws for 2011 may take a significant amount of wealth away from your heirs.

 

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