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Tuesday, January 9, 2018

The Close Relation Between Estate Planning, Asset Protection and Second to Die Insurance



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All of us have to do estate planning at some stages in our lives and the earlier you do, better it will be. We all talk about estate but often do not have a clear idea of what it means. Many people usually link estates to the assets that they own which are only partially correct. Estate refers to anything you own that has a value. From cars and homes to investments, bank accounts, cash value life insurance and even personal property, stamps, knives, guns, everything belongs to your estate. All that you have amassed during your life and all that you are going to leave behind become a part of your estate.


Estate planning is essential

From the above, it becomes clear that you have to do some estate planning to ensure that you do not pass on any burden of taxes to your children. Estate planning ensures that the assets you have created with so much effort and hard work remains within the family and even passes down the generations. When doing estate planning the survivorship policy or second to die policy becomes the most talked about the tool. How you can implement the estate plan would become clear on reading this article.


Look for an insurance policy

When you die, your children and grandchildren will inherit the estate that you leave behind, and you would like to ensure that they preserve it well. However, for preserving the estate, it requires some good sum of money because it attracts estate taxes. The government allows postponement of payment of estate taxes until the time you die, and this should provide some relief to you. But, there is a corollary to it. The taxes keep accruing during your lifetime and become payable by whoever inherits it. So, you are going to the grave leaving behind your legacy together with the burden of taxes. This is when the second to die whole life insurance policy comes in handy. The policy provides the funds necessary for paying estate taxes so that the survivors who inherit the estate do not have to worry about preserving the estate.


Implementing the estate protection plan

After creating a plan for protecting the estate, you have to think about the best way of implementing it. Since you want to protect the future generations, you have to ensure that the funds accrued by the second to die policy and made available to your children on the death of your wife and you, go for payment of estate duties. Setting up an Irrevocable Life Insurance Trust (ILIT) and funding it with the survivorship policy is the most accepted practice to ensure proper utilization of the funds available from the benefits passed on to the survivors.


Assets remain protected

The trust is responsible for facilitating estate tax planning as well as asset protection because assets are included in the estate. The trust also helps to lower estate taxes as it allows the policyholders to take out money from the estate and put it into the trust. As you transfer the estate assets to an independent trust for the benefit of third parties, you automatically accomplish the task of asset protection. The creditors of the survivors who inherit the estate are thus unable to access the assets, which remain protected.


Setting up an ILIT

Take help from an estate-planning attorney to set up the trust as the attorney is the competent person for drafting an ILIT agreement. Select a trustee who should be a third party not connected to the inheritors and should act independently to uphold the directives contained in the agreement. After setting up the trust, proceed in buying the second to die policy keeping in mind that the trust has to buy the policy taken in your and your wife's name. The premium that you have to pay is routed through the trust as you gift the money the trust and the trustee use the money to pay the premium for the insurance policy. Currently, you can gift $14,000 for each beneficiary, which is the maximum that you can pay without attracting any taxes.



Things to consider

Whether or not to take the second to die policy depends on your financial standing and the value of estates that you would leave behind. As on date, the estate tax is applicable only on estates worth $5 million or more. If the estate taxes become a burden for the inheritors, then you should think about protecting them from any financial hardship. Since it is a requirement to continue with the policy after the death of anyone policyholder, you must consider the availability of funds to sustain it.

The policy ensures that funds necessary for paying taxes are available immediately on the death of the estate owners because they only get nine months time for paying it.



About the author:

Isabella Rossellini is a financial analyst who regularly writes columns for some syndicated agencies. Isabella even worked as a consultant to some financial companies. She is also a practicing accountant.

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