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    Use of life insurance to offset estate tax

    submitted by Richard P. Wilson, Esquire

    One of the uses of life insurance is to pay federal estate tax incurred by a decedent with an estate in excess of the exempt amount.

    It seems likely that the exempt amount (the amount not taxable) will be reduced to $6,000,000 per person. Any estate that exceeds that $6,000,000 will be taxed at 40%.

    One of the uses of life insurance is to purchase a policy which can offset the tax. 

    Previously you could establish an irrevocable life insurance trust that would pay your heirs enough in this regard.

    Life insurance is generally taxable in a decedent’s estate.

    However, if the policy is owned by an irrevocable trust, the insurance proceeds will not be part of the decedent’s estate. 

    Previously, you could set up a trust and pay the insurance premiums annually. 

    The new law being proposed is changing that and that method of payment will no longer be accepted. 

    You can still buy such a policy and you will have to prepay the future premiums now. 

    Since this would be substantial you may be able to finance these premiums in an acceptable manner.

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