Many people know what a truly valuable investment life insurance can be. Aside from the obvious fact that your family would receive a predetermined sum of money if you should pass away prematurely, there are also a number of tax benefits that can benefit a lot of people. However, there are some taxes on life insurance that you should know about to help maximize the amount your family gets if a death benefit is paid out.
When death benefits are paid out from a life insurance policy they are usually free of any federal income taxes. But what some people are not aware of is that the proceeds of a life insurance policy may be subject to estate taxes. Estate taxes can be as high as 45% but there are some {legal ways to avoid|ways to legally avoid|legal ways to get around}}} paying this.
If you own the life insurance policy it will be included in your estate and eligible for estate taxes. One way around this is to not be the owner of the policy yourself. Rather, you can have the people that you would name as beneficiaries take out a life insurance policy on you. If you were to pass away your family members would be able to cash in the life insurance policy and since it was never in your name it would not be part of your estate and therefore not subject to estate taxes.
Another way to do this would be through the use of an irrevocable life insurance trust. An ILIT will ensure that any death benefits would be distributed to the right people but you would not have any ownership of the life insurance policy itself which would make those benefits subject to estate taxes. In this case the trust would have ownership of the policy and therefore any proceeds and those proceeds would not become part of your estate and therefore not taxable.
The laws and regulations concerning estate taxes are constantly changing and it is highly recommended that you consult a financial planner or other competent professional regarding advice on tax matters and estate planning. Taking the time to properly plan for the inevitable could save your family a fortune.
About the Author
If you need to answer the questionHow Does Life Insurance Work?, or how can I find Cheap Term Life Insurance? You might want to check out some of my other articles.
Article Directory: http://www.articlerich.com
No comments:
Post a Comment