ESTATEL1

IRREVOCABLE LIFE INSURANCE TRUSTS

SINGLE PERSON or LAST SURVIVING SPOUSE

Any increase in the taxable estate due to additional life insurance proceeds will be taxed at one’s marginal estate tax bracket, unless the policies are owned outside the estate. Brackets range from 37% to 55% (plus a potential 5% surcharge on estates over ten million dollars)

For example, assume the following:

Your estate at date of death $3,000,000
Recommended new insurance amounts $1,000,000
Potential estate with new insurance $4,000,000

                                        Projected Marginal Tax Bracket 55%¹

Federal estate tax on $4,000,000 = $1,648,000
Federal estate tax on $3,000,000 = $1,098,000
                                        Difference =   $550,000
Additional amount to heirs:        =    $550,000

Note: Taxes indicated above assume full unified credit is available

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This is the marginal tax bracket on a $3,000,000 estate

Typically, to keep insurance proceeds out of the estate, the policy should be owned by either adult beneficiaries or an irrevocable life insurance trust.

Courtesy: Guidance Financial Consultants, Inc.