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 __________________________________________________ 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.
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