What is a Survivorship Universal Life Insurance Policy?
A Survivorship life insurance policy is different from an individual universal life insurance policy in that the policy insures the lives of two people (usually a husband and wife). The policy proceeds are only paid out upon the death of the second insured. All of the survivorship universal life insurance policies quoted by www.TermInsuranceBrokers.com feature premiums that remain fixed and guaranteed for the life of both insureds.
What is the main reason to purchase a survivorship policy instead of an individual policy?
Survivorship life insurance policies are a very effective tool that can reduce estate tax liability. The use of an Irrevocable Life Insurance Trust (ILIT) combined with a survivorship universal life insurance policy can be a most valuable strategy to shift the burden of payment of an estate tax, when due, to another entity. Rather than liquidate assets accumulated over the years and pay the tax with 100% of your own money, you can pay the tax with installments at pennies on the dollar – the funds for the tax are then paid by the entity upon death.
The strategy includes the purchase of a survivorship (second-to-die) universal life insurance policy. The purchase of a policy that insures two lives should prove to require much less money in premium outlay than a policy that insures one individual alone. The policy is owned by the trust (ILIT), and premiums are paid through contributions to the trust.
How does the ILIT pay the premiums for the policy?
The contribution of funds to an ILIT constitutes a gift to the beneficiaries of the trust. Therefore, you are limited to the amount contributed to the trust by the allowance permitted by law before you trigger another tax, or a gift tax. That amount, of $13,000 in 2009 (and adjusted for inflation each year), doubles to $26,000 if the gift is made to the trust by husband and wife. If the premium for the policy is $30,000, and you only have one beneficiary of the trust, you would file a gift tax return for the extra $4,000 ($30,000 premium minus the $26,000 gift limit per beneficiary). You have a high gift tax exemption, however, and the $4,000 can be applied to the lifetime gift exemption available.
The trustee for the ILIT may open a bank account for deposit of the monies received as a gift. The contribution of a gift to the ILIT means that your beneficiary has the right to withdraw monies you have placed into the trust, and the trustee therefore deposits the funds into the account and generates a note to advise the beneficiary that the funds are now available. The trust document creates a time limit for the beneficiary to withdraw the money contributed as a gift – once that time limit expires, the trustee can use the funds remaining in the trust to pay the premiums for the policy.
What are the tax implications of using an ILIT?
The proceeds paid from the life insurance policy remain income tax free when received by the trust. The trust is irrevocable, and the proceeds will therefore not be included in the calculation of the estate tax due upon the second death. In short, you have achieved tremendous leverage by contributing pennies on the dollar to the trust to transfer assets at the lowest possible cost.
How can I get a quote for a survivorship life insurance policy?
Given the more complex nature of the estate planning process, it would be best to give us a call at 1-800-571-2980 or e-mail us at Info@terminsurancebrokers.com 24 hours a day so we can help you review your personal situation in further detail and set up the policy that best suits your individual needs.