Life insurance is a rudimentary component within many estate plans, and it is the most widely utilized income replacement vehicles that we have. But, in addition to the simple utilization of life insurance as a way to provide your family with a safety net in the event of your sudden death, it is often utilized in more complex estate plans for a number of legitimate reasons.
As you are considering the purchase of life insurance it is important to do so with full knowledge of the potential tax consequences. If you are the owner of a life insurance policy the proceeds that will be distributed to the beneficiary or beneficiaries are in fact considered to be a part of your estate for estate tax purposes.
It is essential to do the math and see where you stand with regard to the estate tax exemption as you are positioning yourself financially. Right now the exclusion is $5.12 million, but it is going down to just $1 million at the end of the year.
There are ways that you can position your life insurance policies with the realities of the estate tax in mind. One option would be to have them purchased and held by a life insurance trust. Properly completed this will remove the death benefit from your taxable estate. This is something to discuss with a seasoned and savvy professional.
If you are in fact interested in opening up a dialogue with an expert, take action right now to arrange for a consultation with a licensed, experienced Oklahoma City estate planning attorney.
Author, President and Founding Attorney
Parman & Easterday