The Impact of Life Insurance
Many people underestimate the total value of their estate. People assume that they do not have enough assets to worry about estate tax planning. However, most do not realize how their life insurance factors into the equation.
It does not matter whether your insurance is whole life, group life, term, etc., in general, the policy’s death benefit is included in your gross estate.
When it is Included
Life insurance proceeds payable at death will be included in your gross estate if the insurance is:
- Received by the estate;
- Received for the benefit of the estate, i.e., required to be used to pay debts or taxes; or
- You had “incidents of ownership” in the policy.
You have “incidents of ownership” if you or your estate has the right to the “economic benefits” of the insurance policy. If you are named as the owner of the insurance policy, then the policy will be included in your gross estate. Additionally, if you retain any of the following powers, the proceeds will be included in your gross estate:
- Power to change the beneficiary designation;
- Power to surrender or cancel the policy;
- Power to assign or revoke assignment;
- Power to pledge the policy as security for a loan;
- Power to borrow against the surrender value of the policy.
Consider your Gross Estate
The inclusion of life insurance in your gross estate can easily throw you over the exemption amount and into a taxable estate. A variety of estate planning tools and techniques are available to reduce, and possibly eliminate, estate taxes upon death.
Photo: David Hilowitz