Yes, estate tax does apply to life insurance. In 2012, if the size of your estate (with life insurance proceeds included) exceeds $5,250,000, estate tax would have to be paid on the excess at a top rate of 35%.
Some people take care of estate taxes by buying a life insurance policy to pay them. Some use an Irrevocable Life Insurance Trust (ILIT) to own and be beneficiary of the policy.
There is so much expertise needed in transactions like this that we hire a professional who understands both life insurance and tax strategies for large cases. Make sure you get the best advice possible to help preserve your hard earned estate.
The unified credit for married couple exceeds 10 million, so in theory an estate with less than 10 million including life insurance shouldn’t pay federal estate taxes. There is still state exposure that could expose the death benefit proceeds to state tax since most states do not use the federal threshold in the unified credit. Consult your tax attorney before moving forward with any purchase or retitling of assets.
That is a great question! The answer lies in the size of the estate that you will leave behind. If you are leaving less than the 5.25 Million dollar threshold, then you don't have to worry. I'd suggest that you consult a good tax attorney, or estate planner, and have them help you set up a plan to avoid it in any event. There are several ways to do that, and those people can help. thank you for asking!
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Some people take care of estate taxes by buying a life insurance policy to pay them. Some use an Irrevocable Life Insurance Trust (ILIT) to own and be beneficiary of the policy.
There is so much expertise needed in transactions like this that we hire a professional who understands both life insurance and tax strategies for large cases. Make sure you get the best advice possible to help preserve your hard earned estate.