Today’s young families should consider purchasing a survivorsh
ip life insurance policy. These policies, also called Second to Die policies, insures two people, usually husband and wife, but provides only a single death benefit that is payable upon the death of the second of the two insureds.
Survivorship policies can be less expensive than a life insurance policy that is purchased on a single individual. This is because the risk is spread over the life expectancy of two rather than one individual. Two people may qualify for coverage even if one of them is medically “uninsurable” due to a pre-existing medical condition. This provides added security for both.
One of the most common reasons for purchasing a Survivorship policy is for payment of Estate taxes. Even though you may have wills, trusts and property ownership, if your assets exceed $7 millio
n (for 2009) your estate may be subject to Federal Estate taxes for married individuals ($3.5 million for single individuals). A simple example is where Bill and Jill are both 60 years of age and have three adult age children. There net assets total $7.5 million. They have prepared appropriate wills and/or trust documents and have redeeded their property to maximize their respective applicable exclusion amounts. There is a potential that based upon current tax law, only $7 million would pass to their heirs free and clear of estate taxes. The remaining $500,000 would be subject to Federal Estate taxes if they died this year (excluding other administrative and funeral costs).
Creating an Irrevocable trust (IR) that pur
chases a survivorship life insurance policy is one way to effectively reduce the overall Federal Estate tax cost. The IR would be both the owner and beneficiary of the policy. This would allow the proceeds of the policy to pass to the trust beneficiaries (in the foregoing example that would be Bill’s and Jill’s adult children) estate tax free. The proceeds of the policy would be used to pay any estate taxes and would not be paid out of the corpus of the trust itself.
Moreover, if the trust is drafted properly, Bill and Jill could make a gift of the policy premiums to the trust by using their annual gift tax exclusions without incurring a gift tax. Individuals can gift up to $13,000.00 per year per donee to anyone they wish in 2009 or $26,000.00 per married couple.
Now, survivorship policies do not come cheap. This is why purchasing such a policy at a younger age would be more cost efficient than waiting until you and your spouse are in your 60’s or 70’s. Additionally, you can set up the policy to provide an added cash value that builds and increases the potential death benefit that is paid on the death of the second individual insured.
Survivorship policies can result in a “win-win” situation for you, your spouse and your family. This is true whether you have an estate tax problem or you wish to leverage the value of any gifts that you make to your children, grandchildren or favorite charity. A survivorship policy can help provide the maximum benefit for a reasonable cost.
The foregoing should not be considered legal advice nor is it intended to serve as legal advice. You should consult with an experienced Estate Planning Attorney who can counsel you on your individual and unique situation.
Jordan Masiakos, P.C. Attorney At Law 200 Willis Avenue Mineola, New York 11501 Tel: 516-873-0795 Fax:516-873-6686 Email: masiakoslaw@optonline.net Web: www.masiakoslaw.com
