Many times, because of improper planning, the estate tax problem is only worsened by the purchase of life insurance. For example, an individual realizes that a $350,000 tax is to be levied against their estate at their death. With this information, they may purchase a $350,000 life insurance policy to cover this future expense. If they are the owner or the premium payer of this new policy, it too will be included in their estate. Thus, the tax bill would be increased by approximately $105,000. Under this scenario, there is never a break-even point… the more insurance the larger the tax bill.
There are a couple of ways to handle this problem. You can make your spouse the owner and beneficiary. While it will not be included in your taxable estate (unless they predecease you) it will be included in theirs. So, unless they dispose of the money before they pass away, you have only delayed the problem instead of curing it. Alternatively, you could make a relative the owner. However, if you are paying the premium through them, you could end up with gifting or incident of ownership problems (not to mention the possibilities of in-law/outlaw influence.) One of the best, all around solutions is the usage of an Irrevocable Life Insurance Trust. These too have a number of rules and requirements.
Your Financial Solutions Group registered financial professional can help you pay particular attention to these rules and requirements. Essentially, the trust acts like a treasure chest where your policy remains secured. The trust owns the policy and all premiums paid are made as a gift for the benefit of the future beneficiaries. A trustee is appointed to assure that all provisions of the trust are carried out. This “treasure chest” will make sure that the insurance is never a part of your taxable estate. It can even be used to make special payout arrangements for children in accordance to their individual personalities and needs..