One of the most important reasons to buy life insurance is to preserve and transfer your wealth. If you don’t plan ahead, your heirs may receive only a portion of your money due to heavy estate taxation. We’d like to show you how to discount your estate tax costs up to 90% and pass along as much of your money as possible to your family and the charities that you support.
Let’s say you are married and have an estate worth $20 million with about $11 million exempt from federal estate tax. Given today’s estate tax rates, with a maximum federal estate tax bracket of 40% and many states that impose significant inheritance taxes on top of that, it’s fair to assume your family will owe 50% of the amount over the exemption plus any state inheritance taxes or $5 million, in estate taxes upon your death. If you are single, the same $20 million estate will create a $6 or $7 million tax bill. And for all we know, that tax bill may rise in the future if estate tax rates become a negotiating point when it comes to handling our country’s fiscal issues.
So how do we reduce those estate taxes? First, we set up an irrevocable life insurance trust, often simply called an “ILIT.” Inside the trust, a $5 million life insurance policy is purchased, which is the amount of estate tax you expect to pay upon your death. The one-time cost of that policy for a healthy couple around 70 years of age is approximately $1.25 million.
In this scenario, you’re paying $1.25 million now instead of $5 million later. The net result of this would be passing an additional $3.75 million, income and estate-tax-free, to your heirs. That’s a 75% discount on your estate tax costs. The total money you’d be passing to your heirs in this scenario is $8.75 million instead of the $5 million they’d receive if you died with $10 million in your taxable estate.
If you and your spouse were younger – say, 60 years old – the cost of that policy would be far less than $1.25 million, creating the potential for a 90% discount on your estate tax costs. Further, you aren’t required to pay the full insurance premium up front. Instead, you could make those payments annually, which dramatically alters the internal rate of return on the policy in the event of your early death.
At Howard Kaye, we’ve been helping our clients implement life insurance solutions for decades. If you want to dramatically reduce your estate tax bill and pass more money along to your heirs, speak to one of our life insurance advisors today at 800-DIE-RICH.