Creative Insurance Solutions for Today’s Mature Family
December 15th, 2009
Survivorship life insurance offers a creative and flexible solution for a family’s life insurance needs. Often referred to as last-to-die or second-to-die, this life insurance policy insures two individuals yet provides only one death benefit payable upon the death of the second insured. In many instances, survivorship life insurance may be less expensive than a single life insurance policy on one of the insureds. This is possible because the insurance risk is spread over the life expectancy of two lives rather than one. In fact, two individuals may qualify for coverage even if one is medically “uninsurable,” thus providing added security and planning potential for otherwise difficult situations.
Why Survivorship Life?
Survivorship life insurance presents several opportunities, the most common of which is the funding of estate taxes. Even with the appropriate wills, trusts, and property ownership, assets of married couples that exceed $7 million (for 2009) may be subject to Federal estate taxes (for single individuals, assets over $3.5 million in 2009 are subject to estate taxes). For married couples, a survivorship life insurance policy can be an integral part of an estate plan.
For instance, suppose Peter and Kim are both 60 years of age and have three adult children. Their net assets total $7.5 million. They have updated and signed the appropriate legal documents (wills, trusts, etc.), and repositioned their asset ownership in order to maximize their respective applicable exclusion amount.* The potential exists for only $7 million to pass to their heirs estate tax free. However, the remainder of their assets would be subject to Federal estate taxes if they were to die in 2009 (excluding other administrative and funeral costs).
One solution to this problem would be to createan irrevocable trust to purchase a survivorship life insurance policy. In this situation, the trust would be the owner and beneficiary of the policy, which would allow the policy proceeds to pass to the trust bene-ficiaries (Peter and Kim’s children) estate tax free. In addition, if the trust is structured properly, Peter and Kim can 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 per year per donee to anyone they wish in 2009, while married couples can gift up to $26,000 per year).
Even if a couple does not foresee any estate tax problems, survivorship life insurance can still be a dynamic method to enhance any gifting or wealth transferring program. For instance, a survivorship life insurance policy can help provide wealth to children and grandchildren or potentially transform regular gifts to charity into a sizeable long-term gift.
Maintaining Continuity
The many uses of survivorship life insurance can result in a “win-win” situation for the insureds and their family. Whether you have an estate tax problem or wish to leverage the value of any gifts you make to your children, grandchildren, or favorite charity, a survivorship life insurance policy can help provide maximum benefit for reasonable cost. A consultation with a qualified professional can help you determine how a survivorship life insurance policy can best fit into your overall financial plan.
For guidance, turn to the team at Marlborough Savings Bank. Our branch managers and financial planning area are here to help.
* Under current tax law, estate taxes will be repealed in 2010 and then reinstated in 2011 at pre-2002 levels, unless Congress takes further legislative action.