Those with large estates may have substantial tax liabilities if proper planning is not done. Quite often, there are still taxes due at one’s death even after all the planning tools have been utilized. Uncle Sam does not want bricks, land or timber. He wants cash and he wants it within 9 months.

Many people with this type of problem will buy life insurance so that the liquidity will be available to pay the estate taxes. Since the death benefit is generally much larger than the total premiums paid, this allows the taxes to be paid with discounted dollars. Other choices would be for the heirs to pay cash (100% dollars) or possibly sell something such as timber or stocks when the market is down (100%+ dollars).

Most married couples are usually able to reduce the life insurance premium by buying a 2nd to die life insurance policy. Taxes are generally not due until the 2nd death & it is ususally more cost effective to insure two people in one policy that only pays at the survivors death. Even, if one of them is totally uninsurable, it still may cost less to just insure the healthy applicant.

Also, it is very important that a trust or adult child own a life insurance policy that is being purchased for estate tax liquidity.  If within three years of death, the insured has any incidence of ownership in the life insurance policy, it would be included in his or hers estate and may be taxable. Proper ownership designations initially, would avoid the three year contemplation of death rule.

Please review the for more estate planning ideas.

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