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Most couples use the marital deduction to avoid the payment of any estate taxes until the second death. But, at that time, there is often a huge tax liability that must be paid, in cash, within nine months. Survivorship life insurance is commonly used in estate planning because it provides cash in the form of a death benefit, in the exact amount and at the exact time it’s needed in order to help offset the inevitable estate taxes. Without it, often times, families are forced to sell their business, real estate, and/or other assets in order to raise the cash to pay the estate (death) taxes.
Survivorship life insurance policies are usually purchased in the name of a trust, so that the proceeds of the policy are not included in the decedent’s estate.
Because two lives are insured, and the life insurance company doesn’t have to pay the death benefit until the second death, survivorship life insurance policies can be significantly less costly than policies on a single person. And since the proceeds aren’t really needed to pay the tax until the second death, they fit perfectly.
The fact is survivorship life insurance policies often make it possible to liquidate the estate tax liabilities of wealthy families for just pennies on the dollar.
Careful planning by your tax and legal counsel, coupled with a properly structured survivorship life insurance policy, can help you preserve your net worth for your heirs.
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