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Freeman's Blog

November 30, 2011

Federal tax law currently allows a five million dollar estate tax exemption. As a result, most households in America do not even have to worry about paying an estate tax when leaving loved ones real estate, stocks, or other assets. Unfortunately, unless congress votes to extend the law, the exemption will soon fall to one million dollars. If you’re concerned about the future of estate tax and plan to leave your family a large estate, you may want to consider survivorship insurance.

A survivorship life insurance policy is a bit different than other types of life insurance policies. Two people are insured but the policy only pays the death benefit when the second insured individual on the policy passes away. It generally costs less than two individual policies because the premium is based on the life expectancy of both parties. Also, it’s a good option when you don’t qualify for other life insurance policies due to age or medical conditions. This is not a good option, however, if you would like to leave a death benefit to your surviving spouse. For a balanced approach, consider purchasing term life insurance in addition to survivorship insurance.

Now, the proceeds from nearly any insurance policy are generally considered part of your taxable estate. If you want to keep the death benefit out of your taxable estate, you’ll need to set up an irrevocable life insurance trust. This will help ensure that your beneficiary receives the death benefit without being subject to excessive estate taxes. Don’t try to do this on your own! You should consult with an experienced estate planner as well as an estate attorney before proceeding.