Financial planners have been losing sleep over just how to help their clients prepare for the cost of passing on your estate to your heirs. Certainly the marriage trust, family trust and Q-Tip trusts all protect the second spouses exemption. But the primary question...that is, the real kicker is and has been...what is going to happen in 2011?
We all know the estate tax will be repealed in 2010. But, without congressional action, it will reappear again in 2011. The joke has been: Just make sure your clients die in the year 2010. Then, no estate tax will be due. The closer we get to 2010, the less funny this joke appears.
Life insurance as an estate planning tool: Life insurance has long been accepted as a great estate tax planning tool. People in their 60's or even 70's can purchase a permanent or UL type life insurance policy equal to the projected value of their estate at the time of death and use estate assets to pay for the insurance. The problem has been over the past few years is...life insurance purchased for the purpose of estate tax transfer usually contained heavy surrender charges. If the estate tax itself completely went a way, unwinding the insurance strategy could cost a pile of money.
Innovation to the rescue: One of my favorite insurance carriers just introduced a life insurance concept, approved by most every state (and soon to be approved in all states) that contains a rider that says: If the estate tax is repealed, and stays repealed for 12 months, ALL SURRENDER CHARGES will be waived and the contract can be unwound without respect to these charges.
