Advanced Planning Ideas

Posted on June 29, 2017


robert davisA Modern Look at Life Insurance: Non-Estate Tax Uses

Robert P. Davis, MM, CLU®, CLTC | Financial Advisor

Summary:  Life insurance is not a one trick pony. Sure, it provides cash to pay estate taxes. But there are many other uses of life insurance to consider, such as planning in second marriages, treating children equally, planning for retirement, or giving to charity.

By now, we have all heard about how life insurance can be used to provide liquidity to pay estate taxes. In 2013, the federal estate tax exemption is $5.25 million ($10.5 million for a married couple).1 Individuals with taxable estates above the exemption amount will be faced with paying federal estate tax at a 40% rate. Life insurance continues to be an important part of estate tax planning.

But is that all life insurance is good for? Absolutely not!  Life insurance is uniquely suited to deal with many of the complexities of modern life.

For example, Jay, who is in his 60s, is married to Gloria, who is in her 40s. This is a second marriage for them.  Both have children from their first marriages.  Let’s take a look at a few ways that life insurance solves their specific needs.

Planning for second marriages:

Jay wants to take care of Gloria during her lifetime but also provide for his daughter, Claire, and his son, Cameron.  Because Gloria is about the same age as his kids, Jay is concerned that they may never live to see an inheritance.

Can Jay provide funds to his children at his death but still leave Gloria enough to live on? Yes. Jay can own life insurance on his life and have it payable to his children outright, or to a trust for their benefit. Or the policy can be owned by and payable to an irrevocable life insurance trust (ILIT).  On Jay’s death, the proceeds can be distributed to the kids or held in trust for their benefit. Either way, the children can be provided access to the proceeds beginning at Jay’s death.   Jay can leave his other assets to Gloria, either outright or in trust.


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Click here to read Charitable Gifts of Life Insurance in Brief