Category Archives: Estate Planning


Estate Planning and The Federal Estate Tax


One of the largest expenses associated with settling an estate may be the federal estate tax. There are some very important planning opportunities you can utilize that may reduce the amount of estate tax due as well as provide a mechanism for the payment of taxes.
The Tax Cuts and Jobs Act provided a top marginal rate of 40% and doubled the estate and gift tax exemption amount to $11,180,000 per individual, indexed for inflation.
If you have an estate that exceeds the current exemption amount, you should take a careful look at how the federal estate tax, combined with state level estate taxes or inheritance taxes and other estate expenses such as costs of probate, can substantially reduce the amount of assets passing to your heirs.


Minimizing the impact of estate taxes

There are several ways you can minimize some of these taxes. One way is to make annual exclusion (nontaxable) gifts which will slowly reduce the amount of your estate which may be subject to tax when you die. You may gift this amount to an unlimited number of individuals each year. Your spouse may gift an equivalent amount, thereby doubling the amount of tax-free gifts that can be made to another person in any one year.
Another way to minimize the amount of estate tax due is by using a combination of trusts called a family (or credit shelter) trust and a marital trust, commonly referred to as an A-B trust arrangement. Under this structure, when the first spouse dies, a portion of his/her estate equal to the estate tax exemption amount would be placed in the family trust. It can be structured so the surviving spouse receives the income or principal from the family trust for his/her life if the need arises. The balance of the estate is placed in the marital trust, which qualifies for the unlimited marital deduction so no federal estate tax is due. The martial trust is required to distribute all income to the surviving spouse each year. When the survivor dies, the assets in the marital trust will be included in the spouse’s estate, but all the assets in the family trust pass to the heirs, completely sheltered from further estate tax.
A third way to maximize the amount of assets passing to heirs at death is through the use of an irrevocable life insurance trust. You can set up a trust and gift dollars to the trustee, who purchases a life insurance policy on your life inside the trust. Each year you can make a gift of the premium into the trust (gift-tax free, up to the annual exclusion amount) and the trustee pays the premium. When you die, the death proceeds are paid to the trust and the trustee manages those dollars for the benefit of your heirs. If structured properly, the proceeds of the life insurance policy will not be includible in your estate for federal estate tax purposes at your death.
Additional methods of minimizing estate taxes include making charitable gifts, utilizing private annuities, and entering into installment sales with family members with respect to particular assets in your estate.


Here’s how it works at a high level:

  1. Determine what property is included in the gross estate.
  2. Determine the fair market value for each item of includible property.
  3. Deduct administrative expenses, debts and unpaid taxes, funeral expenses, state death taxes actually paid, and certain losses during estate administration to arrive at the adjusted gross estate.
  4. Subtract the value of any property qualifying for the marital deduction (in the case of a married person’s estate) and any bequests to charity to arrive at the taxable estate.
  5. Add to the taxable estate any gifts that didn’t qualify for the gift tax annual exclusion the decedent made after 1976 to arrive at the total estate tax base.
  6. Compute the tentative estate tax by applying the estate tax rate schedule to the estate tax base.
  7. Subtract from the tentative estate tax the estate tax applicable credit amount (equal to the estate tax exemption on the date of death), foreign death tax credit, gift taxes paid on post-1976 taxable gifts, and any other credits available to arrive at the estate tax due and payable.




There is a perception today that estate planning means planning only for the distribution of property at your death. In reality, the purpose of estate planning should be for you to enhance your estate during your accumulation years, to maintain your financial security during your retirement years, and to provide for the most efficient transfer of property at your ultimate death. With proper planning, these goals can usually be met while at the same time avoiding the conflict and delays inherent in the estate distribution process, and reducing expenses.


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Build, Preserve, and Maximize Your Estate


Estate planning can be a real challenge—even with a will in place. Life insurance death benefit proceeds can provide the liquidity needed to pay off debt, replace income, supplement retirement income, create an equitable inheritance between heirs, and even provide protection for businesses.


Who Can Benefit?

Your beneficiaries, including surviving spouses, children, other loved ones, and even business partners, could be faced with an array of financial complications—in addition to the emotional impact of a loss. Planning only gets you so far. How will you be sure that when the time comes, your wishes will be met? By using life insurance to reinforce your plans for your estate, beneficiaries have a simplified way to access the liquid cash proceeds needed to help ensure your wishes are met.
Not all assets are easily converted into liquid funds. Even if you have a will, certain items take time and often require specialized help to sell or transfer, like:
  • real estate
  • tangible personal property (e.g. jewelry, cars, art collections)
  • intangible personal property (e.g. stocks, bonds)
  • business interests/ownership
The specialized agents, fees, and time involved in dealing with asset transfers like this could end up costing your beneficiaries money. Other factors, like state laws, inheritance disputes, and probate court, could slow the process of heirs receiving their inheritance and cause financial complications for everyone involved. By putting a plan in place that includes life insurance, you can help ensure your beneficiaries have access to funds when they need it most.


Why Life Insurance?

First, having a will in place is crucial. A will allows you to control how and to whom your assets are distributed, and it can be used to suggest a guardian for the care of your children or other dependents. Without a will in place, state inheritance laws could determine how your property is distributed, and even who should care for your children. Having a will helps to ensure your wishes are met.
However, even with a will, assets may not always transfer immediately to beneficiaries. There are many circumstances that can impede the process— the most common being probate court. Your debt, funeral expenses, and the care of dependents could all be hanging in the balance during a lengthy court process. Life insurance can provide generally tax-free access to death benefit proceeds at the time of death, rather than waiting for court settlements or the sale of property to be finalized—helping to give your beneficiaries the financial support they may need during a difficult time.
In addition to laying the groundwork for a smoother estate distribution process, life insurance may help create a solid estate plan which allows you to not only preserve what you have now, but also build your estate throughout your lifetime. Good estate planning works to help protect your assets, while also taking other factors into consideration, like outpacing inflation and growing your estate value to maximize the inheritance for your heirs.


How Does It Work?

Estate planning is a complex process and should be done with the guidance of your life insurance agent, attorney, and any other professionals you may work with (e.g. accountants, trust officers, etc.). An in-depth analysis of your personal and professional assets should be performed to determine which planning opportunities can best benefit your estate. Plans for the allocation of different types of property can be constructed, as well as a life insurance plan to provide a liquid asset in the form of the death benefit.
A popular method is to use a joint survivorship life insurance policy. This type of insurance policy can insure two lives under one policy for a low cost and provides death benefit proceeds when both insureds have died, providing financial support to those who need it. The beneficiaries are typically children, a charity, an organization, or a trust. The death benefit can also be used to help pay taxes on sizeable estates upon death. LHENetwork offers survivorship products that can help protect your estate for your heirs, while also building cash value throughout your lifetime with the ability to earn interest. Talk to your LHENetwork representative about the various life insurance products available to meet your estate planning needs.




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