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Incorporating life insurance into Kent estate plans

Kent readers may be aware that the current $5 million federal estate tax exemption is slated to expire at the end of this year. The impending end of the hefty exemption has spurred an upswing in the popularity of a little-known form of life insurance that can play an important role in a comprehensive estate plan.

A type of policy known as survivorship insurance, or second-to-die insurance, can help even moderately affluent couples preserve estate assets from inheritance tax and pass on a greater share to heirs. Instead of covering the life of just one person, survivorship insurance covers two lives and pays out only upon the death of the second person.

The most common use of survivorship insurance is to provide an influx of additional funds to cover estate taxes so that heirs are not forced to sell off assets during estate administration. Survivorship insurance can also have useful applications for business partners and for parents seeking to ensure ongoing care for a child with special needs.

Because a survivorship policy covers more than one life, health concerns tend to play less of a role in acceptance and premiums tend to be more reasonable than individual life insurance policies.

A popular to maximize the tax advantages of a survivorship policy involves establishing a trust that acts as the owner and beneficiary of the policy. Spouses may contribute cash into the trust to pay premiums without tax ramifications so long as the contributions do not exceed the annual gift tax exemption.

Survivorship insurance is sometimes used for purposes unrelated to estate planning, such as to provide for young children in the event of the loss of both parents, but its unique features make it a versatile tool for some types of estates. Certain rules need to be followed in order to recognize the full benefits of survivorship insurance, so experts recommend consulting with an experienced estate planning professional before purchasing a policy.

Source: Fox Business, "Survivorship Life Insurance: It's Heir Care," Jay MacDonald, Sept. 10, 2012

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