Estate Taxes and life insurance. Any person
with any semblance of wealth, over $3,000,000, should die the Federal Government steps in and takes a hefty chunk of the estate for taxes.
This was repealed for a while but now you are again required to pay Taxes on your estate again. If your Gross Estate exceeds $5,000,000 it will likely to be subject to Federal Estate Taxes.
In order to avoid devastating such estates the knowledgeable people buy life insurance in the amount of the anticipated taxes.
This money would be used to pay the taxes assessed by the Federal Government.
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The Estate Tax law allowed for a deduction of $1,000,000 and the
balance of your estate is taxed at the rate of 55%. This law had been
repealed which had resulted in some people living under the assumption
that they no longer need the
life insurance policy
that would be used to pay the amount assessed at death any more.
If they consulted their tax attorney or a knowledgeable accountant or life insurance agent they would realize that this assumption is far from the truth...
What the law actually did is to gradually reduce the percentage
of estate taxes you would be required to pay by 10% by the year 2009 if
your estate was at the top level...from 55% to 45%.
It also increased the amount of your estate exempt from these taxes to 3.5 million dollars by the year 2010. In 2010 there was no taxes due on your estate upon death but the law reverted to what it was originally by 2011...
If you therefore should die in any year other than 2010, and you have a large estate, Federal Taxes will be assessed and will be required to be paid. Bear in mind that the Government does not wait for it's money so a life insurance policy is still needed to pay this bill. Life insurance is the most cost effective way to pay amounts due.
During the years when less money was assessed by the Federal Government a higher Capital Gains tax was be taken from the heirs as the law stood. In other words these people were immediately thrown into a higher tax bracket than they were in before.
Furthermore, many people are not aware that some States have an Tax Law For Estates separate from the Federal Estate Tax. There goes another portion of your estate...though the amount is usually smaller than the Federal Tax.
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I recently did some research on the development of the 30 year term insurance policy over the years. What I learned was quite interesting.
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