Survivorship Life Insurance

A Tool To Help You Protect Your Wealth From The IRS
Without proper planning, a chunk of your money could go to the IRS at your death. While estate taxes may be inevitable, there are ways to conserve — or at least replace — a portion of your estate. One effective tool to help protect your net worth is a survivorship life insurance policy. More on that in a moment.

Will you have an estate tax problem at your death?
Maybe. Our relentlessly booming economy has created unprecedented wealth — and a number of people with sizable estates. In 1975, for example, 350,000 households boasted net worth in excess of $1 million. Today, that once-exclusive Millionaires Club numbers more than 3.5 million. Moreover, if the economy keeps clicking along at its present pace, that figure should hit 5.6 million households by 2005.

("Number of Millionaires is on the Rise," National Center for Policy Analysis, 1997 Web page:http://www.ncpa.org/pd/economy/pdeco/pdeco5.html)

The majority of millionaires aren't limo-riding celebrities. According to Tom Stanley, author of "The Millionaire Next Door," most people worth more than $1 million worked hard all their lives, and steadily saved their money.

The bottom line: You could be a millionaire — if not already, certainly during your lifetime. That could well mean estate taxes at your death.

Estate Tax Basics
Under today's tax laws, here are several factors you should keep in mind:

• You can transfer a portion of your estate, tax free, to your heirs at your death. If you die in the year 2000, the exclusion amount is $675,000, with the exclusion gradually increasing to $ 1,000,000 by the year 2006 (owners of closely held businesses, depending on several factors, can pass up to $1,300,000 of assets free of estate taxation).
• If your estate exceeds that amount, estate taxes may be due. The bigger your estate, the bigger the estate tax bite. At the top level, estate taxes could run as high as 55%.
• You can transfer your entire estate to your spouse at your death with no tax liability at that time, if exclusion is not met, and provided your spouse is a U.S. citizen.
• If you do this, the estate may be subject to estate tax at your spouse's death. Your heirs may get hit with a estate tax bill.

The results can be devastating. Imagine a family business worth several million dollars. Mom and Dad built it from scratch. While the company is still in their name, the children now run it and will eventually inherit it. However, after Mom and Dad die, the children suddenly face an estate tax bill of potentially up to a million dollars or more. They may very likely have to sell all or a portion of the business just to pay the taxes. These estate transfer taxes are one reason 70% of family-owned businesses fail to make it to the second generation
("Estate Taxes Prove Lethal to Some Family Businesses," St. Louis Business Journal, May 5, 1997).

Survivorship Life Insurance: one effective strategy
If your estate exceeds the exclusion amount, you may have an estate tax liability. However, that does not mean your heirs should lose part of your estate.

This is where Survivorship Life Insurance enters the picture. Also known as second-to-die insurance, this coverage can insure both you and your spouse under one policy, with the proceeds payable after the second death.

Survivorship Life Insurance offers a number of benefits as an estate planning tool:

• Simplicity. Under one arrangement, you may want to establish an irrevocable life insurance trust to purchase the insurance policy, with your heirs as beneficiaries. (This keeps the insurance proceeds out of your estate for tax purposes.) By means of a will, estate assets then pass to the surviving spouse at the first death. At the second death, the insurance death benefit is paid, with the policy proceeds passing directly to the named beneficiaries. They can then use the money to replace assets lost to taxes.
• Price. Since two lives are insured, premiums are generally lower than for two single-life policies.
• No second guessing. There is no need to plan based on who will die first.
• Underwriting is generally more liberal than that for a single life policy, since two lives are insured and the benefit is paid at the death of the second. A proposed insured who may have been denied life insurance coverage by a single life insurance product, may be approved for coverage by a survivorship life insurance product. Keep in mind that not every person who has been declined for coverage for a single-life policy is necessarily eligible for coverage under a survivorship life insurance policy.

Survivorship Life Insurance can meet other needs as well, and is commonly used to benefit:

• Children with special needs. The insurance can provide guaranteed funding for a trust to provide for a child with disabilities after the death of the second parent.
• Charitable gifts. This coverage can help create a living legacy for a favorite charitable organization after both spouses' needs have been provided for.

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