Tax Tip of the Week
900 N. Kings Highway, Cherry Hill, New Jersey 08034
856.667.4100 ·
215.563.0276 ·
Fax: 856.667.3652
For the week of
March 27, 2000
Don't give the government up to 55% of your life insurance proceeds
Can you imagine giving the government $550,000 of your million
dollar life insurance policy? It could happen.
If you own your life insurance at the time of your death, the proceeds could be subject to estate taxes. Ownership
is defined in the tax law as having any "incident of ownership." This means that if you can change the
beneficiaries, borrow against the loan value, etc., you are considered to have an incident of ownership.
The top tax bracket for estates is currently 55%. If your total estate is likely to exceed the $675,000 exemption
amount for the year 2000 (the exemption is scheduled to top out at $1,000,000 in 2006), look for ways to reduce
your estate taxes. Divesting yourself of ownership of your life insurance is one such way.
If you have not owned your life insurance policy for three years at the time of your death, and your estate is
not your beneficiary, the insurance proceeds will not be included as part of your taxable estate. Consider transferring
the full ownership of your insurance to someone else or to a trust.
If your spouse is the beneficiary of your life insurance, the proceeds will escape estate tax in your estate because
of the unlimited marital deduction. But when the second spouse dies, the proceeds could be subject to estate tax
at that time.
Please contact us. We will be happy to work
with you, your attorney, and your life insurance agent to see that you get the best estate tax treatment possible
under the law.
Click here to view previous tax tips.
"Tax Tips" are published weekly to
provide useful tax information. Return to this site every week for helpful tax-cutting suggestions, tax reminders,
and current tax information.
The information contained in this site is of a general nature and should not be acted upon in your specific situation
without further details and/or professional assistance.
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