It’s well known that when you die you can leave an unlimited amount of your wealth to your spouse without paying estate tax. The problem arises, though, when your surviving spouse dies. At that time your assets will be included in his or her taxable estate, with taxes up to 50 percent due in nine months.
Would your heirs to be forced to liquidate the family homestead or other personal assets to pay the estate tax? And will your IRAs lose over a third of their value to income tax? An alternative might be a life insurance policy specifically designed to cover these costs.
Second-to-die insurance insures two lives and pays after the second person dies. It is also know as survivor life insurance, joint-and-last survivor insurance, and last-to-die insurance. The beneficiaries generally use the death proceeds to provide the liquidity needed to pay estate tax, income tax, and other settlement costs.
The premiums for second-to-die insurance may be less than a standard life policy, particularly if you or your spouse are not healthy. Insurance companies determine rates based on your projected life expectancy. Therefore, if you have a medical condition, your premium would be higher than your healthy spouse’s premium. But with second-to-die policies, the company will put greater weight on the healthier of the two of you since they won’t have to pay until the last one dies. And even if you or your spouse has serious medical problems that would cause a standard policy to be rated or declined, a second-to-die policy may be obtainable.
Second-to-die life insurance is generally for couples with taxable estates over $1 million. Now, you may think that such a figure doesn’t apply to you. However, escalating real estate prices, several decades of an expanding stock market, and plain old inflation have pushed many middle-class Americans above the $1 million mark.
Estate taxes are scheduled to phase out by 2010. But unless Congress takes action, in 2011 couples with taxable estates of $675,000 or more will be looking at a potential 55 percent estate tax. And even if Congress does something, don’t forget that individual states can modify their estate tax laws (and many States are discussing imposing their own estate tax as their share of the federal estate tax declines).
For a free analysis of how to preserve your estate for your heirs (and also how you can get life insurance with pre-tax dollars), just return the enclosed coupon or call my office for an appointment.