Death though inevitable raises different kinds of fear among people who are worried about the erosion of their investments after their death and what would happen to the family should the person meet with untimely death. A similar concern arises about continuing the school and college education of children in the absence of the parents and protection of the inheritance that they leave behind.
Ageing couples often wonder how the heirs could manage the tax liabilities of real estate that they leave behind. The worry is quite natural because paying taxes for real estate can often become a burden for those who inherit it. The last thing that parents would like to think about is selling off the property by the heirs as they might find it difficult to arrange the money required for paying taxes to maintain the property. Estate taxes are expensive, and the anxiety stems from it.
One of its kind life insurance policy
Life insurance policies when chosen correctly could address the concerns and provide solutions. However, how many policies must you have? Since each matter is different from another, you would land up taking several policies that can be quite expensive and hard to afford. In such circumstances, you would like to buy a life insurance policy that helps save tax, leave an inheritance and create estate liquidity or pay for estate taxes, for which the second to die life insurance policy is the only choice. Second to die policy is the only life insurance policy that helps to realize all the goals.
A policy for estate planning
For those who focus on estate planning when buying life insurance policies, the second to die policy is the right choice. The policy is for couples who want to ensure that the heirs do not have to face financial problems in paying high estate duties when the couple passes away. The policy is cost effective and provides benefits to the heirs only when both spouses meet with death. No surviving partner of the policy is eligible to receive any benefit in the event of the demise of one partner. Besides paying estate taxes, the policy helps in planning for the survival of children with special abilities.
The story behind the policy
A law was passed in the US in the 1980s that allowed married couples the option of delaying federal taxes on estates until the time the couple passes away. The law prompted life insurance companies to design the survivorship life insurance or dual life insurance, the other names of second to die policy that provides considerable elbowroom in estate planning. Not only you pay the tax later, but the policy also provides the financial assistance to meet the expenses so that it does not burden the heirs. Deferment of tax enables the couple to prevent depletion of their savings that would otherwise go to paying taxes.
Take advantage of the law
How well you can make your financial planning depends on how much aware you are about the rules and how correctly you interpret it. Under the federal law, you can avail marital deduction that entails you leave any amount of assets to the surviving spouse. The act of leaving your worldly assets to the spouse relieves you from paying federal taxes. The spouse can enjoy the assets, which are likely to face taxes when he or she dies. That is when the second to die policy comes handy. The benefits of the policy that covered the couple now pass on to the heirs who can use the money to retain the property by paying taxes.
Flexibility and tax savings have been the focus on people who buy second to die policies. You can pay a single premium or annual premiums to cover more than your death benefit. The excess that remains after covering for death benefit keeps growing with tax deferment, and this helps to build a large corpus of cash. Although insurance companies guarantee the return on the policy, it depends on the prevailing federal interest rates that can vary. There was a time when earnings were between 6% and 12%, but now it has come down significantly.
Review the policy
Having a second to die policy and sitting tight on it does not always help. To make the policy work in your favor and serve your best interest, you must review it interim by requesting the insurer. It would give you complete understanding about the payout on death. Evaluate the options to decide whether to stay put, bring down the death benefit so that cash reserves last longer, depending on the quantum of return you might put in more money or even sell the policy or exchange it with some other policy.
However, if providing relief to the heirs is your goal, then carrying on with policy makes sense.