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| LIFE INSURANCE When a family has a taxable estate, the parents may decide to purchase life insurance in order to pay any death taxes. This might assure the entire family that the next generation would not be forced to sell assets in order to pay those taxes. This approach is especially useful when the family business constitutes a major part of the family's estate. Naturally, the family would not want to be forced to sell the family business in order to pay taxes. In addition to removing a valuable income-producing asset from the family, a sale, under forced circumstances, might not bring as good a price as it would under more normal conditions. Enter the life insurance policy. For this particular purpose, the life insurance industry generally promotes a "Last-to-Die" policy. Because there will be no estate tax on the death of the first spouse, there is no need to have the insurance policy pay at that death. The liquidity needs will arise at the death of the second spouse. Depending on the amount of cash that the family wants to put into the insurance policy, the parents can decide how much of the policy or policies should be in "term" or "cheap" insurance ... and how much should be in "permanent" or "cash value" insurance. For the best peace of mind, put as much as possible in permanent insurance. Also, parents may elect to pay off the premium in a short number of years. A key element in this plan relates to the question of ownership of the policy. There are three offices in each insurance policy: 1.) The Insured 2.) The Owner and 3.) The Beneficiary. If parents are the owners of the policy, the policy proceeds are in the parents' taxable estate, a condition that you want to avoid. To make the life insurance work best, be sure that the parents are not the owners of the life insurance policy. You can also include a charitable cause in the life insurance policy. You could say that the initial proceeds are to pay taxes and the proceeds not needed for payment of taxes go to our cause. If you want to include "The Foundation", tell your insurance agent that you want us named as a residual beneficiary. |
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