Term Life Insurance Articles
How Estate Taxes Can Affect A Term Life Insurance Payout
2011-08-21
When you take out a life insurance policy on yourself, you need to consider your total estate value. As you get older, the term is coming closer to an end and determining your options will help you with the term life insurance policy that you place. When you die, the total benefit is added into the cost of your estate and therefore subject to estate taxes.
At the end of 2010, federal tax laws changed when the Economic Growth and Tax Relief Reconciliation Act ended. As a result, the federal estate tax threshold became $1 million. This means that any estate with a value of over $1 million is subject to pay the estate taxes.
There are several different options which can then affect your payout. This will be based upon how much your term life benefit is as well as the value of the rest of your estate. If your term life benefit is a minimal amount and your total estate does not have a lot of value, then you don't need to be concerned.
If, however, the estate that is in your name is over $1 million or would be in the event that your term life insurance benefit brings you over the edge, then the majority of your benefit would go towards paying off estate taxes instead of being left to your family, as your initial plan probably was.
If the estate tax threshold is within reach, it's necessary to name someone else as the term life policy holder, instead of yourself. The beneficiary can be the owner (though they must also pay the premium) so that the benefit won't be counted into the estate total. There are many estate planners who can help with the planning of this and it should be considered.
The entire reason that most people decide to take out a term life insurance policy is to ensure that their family is well taken care of in the event of their death. If the entire benefit goes towards estate taxes, you aren't leaving your family anything, which means that you paid your premium every month simply for the IRS to benefit.
Through increasing your premiums, transferring title or talking to an estate planner, you may be able to avoid the estate taxes or at least soften the burden on your family. If you are interested in transferring the title, however, it should be done sooner than later. Many companies will dispute the benefit altogether if it was transferred within three years of you passing. To avoid all of this, planning ahead of time can truly pay off - at least until the threshold is increased once again.
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When you take out a life insurance policy on yourself, you need to consider your total estate value. As you get older, the term is coming closer to an end and determining your options will help you with the term life insurance policy that you place. When you die, the total benefit is added into the cost of your estate and therefore subject to estate taxes.
At the end of 2010, federal tax laws changed when the Economic Growth and Tax Relief Reconciliation Act ended. As a result, the federal estate tax threshold became $1 million. This means that any estate with a value of over $1 million is subject to pay the estate taxes.
There are several different options which can then affect your payout. This will be based upon how much your term life benefit is as well as the value of the rest of your estate. If your term life benefit is a minimal amount and your total estate does not have a lot of value, then you don't need to be concerned.
If, however, the estate that is in your name is over $1 million or would be in the event that your term life insurance benefit brings you over the edge, then the majority of your benefit would go towards paying off estate taxes instead of being left to your family, as your initial plan probably was.
If the estate tax threshold is within reach, it's necessary to name someone else as the term life policy holder, instead of yourself. The beneficiary can be the owner (though they must also pay the premium) so that the benefit won't be counted into the estate total. There are many estate planners who can help with the planning of this and it should be considered.
The entire reason that most people decide to take out a term life insurance policy is to ensure that their family is well taken care of in the event of their death. If the entire benefit goes towards estate taxes, you aren't leaving your family anything, which means that you paid your premium every month simply for the IRS to benefit.
Through increasing your premiums, transferring title or talking to an estate planner, you may be able to avoid the estate taxes or at least soften the burden on your family. If you are interested in transferring the title, however, it should be done sooner than later. Many companies will dispute the benefit altogether if it was transferred within three years of you passing. To avoid all of this, planning ahead of time can truly pay off - at least until the threshold is increased once again.
