Beware of these common pitfalls that life insurance can
reduce your value to your family ... or allow the payment of compensation to
the IRS.
Trap: With life insurance too long. To work over the years
and a family, you probably have a lot of life insurance to protect your family
against the possible loss of your income.
But like his approach more years - with her children grow,
the mortgage and retirement accounts funded paid - Your insurance can be
greatly reduced.
For many, the justification for owning life insurance is to
pay estate taxes. However, this requirement has been reduced in recent changes
in tax laws, the mass and the amount of the gift tax for individuals to raise $
1 million exemption.
After payment protection insurance unnecessary past the
possibility of higher yielding assets to acquire.
STRATEGY
Check your insurance needs based on changes in their
personal circumstances and their inheritance tax exposure. If you find that you
are getting the hint ..
* Exchange rate of life insurance policies issued on a
tax-deferred annuity from an insurance company to get a better return. This can
be organized through a tax-free exchange, whereby any taxable gains from the
sale of the insurance policy.
* The gift of your insurance policy to charity. You receive
a tax deduction for the costs under the policy, the premiums you have paid.
* Enter a political gift for your child or grandchild. The
advantage of the policy is tax-free to the recipient, the child and provides
valuable benefits to financial security. The gift will also remove your taxable
estate policy, assuming you survive three years after the donation.
You can avoid paying gift tax on the transfer of your annual
gift tax exclusion (currently $ 10,000 per recipient, or $ 20,000, where
donations are made by a couple) and, if necessary, with a portion of your
property and the amount of gift tax exclusion .
* Enjoy the policy. This money is in your pocket, but you
will the tax base to the extent that the amount of the police as to what he
realized get paid by premiums.
Estate Planning Tax: If you find that you still need life
insurance to cover the possible find Erb, you should use a second order policy
that covers you and your spouse and pays benefits on death of the victim die.
The estate tax marital deduction, all assets of a spouse
estate tax free to the surviving spouse, making it the death of the surviving
spouse's tax liability on the death of the couple is due to password.
A second, can die policy funds for a tax bill that
significantly lower cover the cost of the goods purchased two insurance
policies on each spouse separately.
TRAPS
* With insurance on your own life. This may be the insurance
benefits are subject to estate tax at rates up to 55%. Because if you have a
policy on his own life income in your taxable estate include the
Avoid this trap by the beneficiary of the insurance that you
have, or the creation of a life insurance trust to support the policy and
distribute the product to your specifications.
You can always pay the premiums for the policy, donations to
the contractor (or trust beneficiary) with its annual gift tax exclusion for
tax havens gifts.
Advantage: With his life insurance, which is the beneficiary
of the insurance holding tax-free property.
The mistakes to avoid ...
* With insurance on your own life, and you name your spouse
as the beneficiary. Insurance benefits escape inheritance tax his death because
of the unlimited marital deduction - but if her husband dies ownership, the
product may be taxed in his / her heritage.
* Possession of a life insurance a person and the
appointment of a third party beneficiary.
Example: One spouse has a life insurance on the other
spouse, and the names of a child as a beneficiary.
The catch is that because the owner of the control strategy
beneficiaries pay the benefit to the recipient is a taxable gift by the
contractor received.
Also avoid this trap beneficiary of the life insurance
policy or a life insurance policy in trust.
Important: If you define a life insurance trust to his own
insurance, make sure that the trust developed by an expert in the field. Trust
documents, non-specialists are made easily confused contain profanity, not the
technical requirements, which the trust fails.
* Borrowmg against life insurance. It can be tempting to
borrow against life insurance because the loans can be a source of money tax-free
and low interest rates.
But some of the pitfalls of borrowing against insurance lead
...
* If you borrow against the insurance company reduced the
insurance benefit for any insurance, so that they more exposed to financial
risk families.
Dangerous Scenario: In general, interest on a loan against
the insurance is not paid in cash but will be deducted from the policy. If the
loan is not repaid, and the compounds of interest can reach the loan equal to
the value of the policy. Then the policy will end, and you get the tax base in
the amount of the loan is not paid (a "forgiveness") minus your basis
in the policy, despite receiving no cash needed to implement payment of income
taxes.
* If you borrow against the insurance company and then transfer
the contract to another person for the benefit of the policy are subject to
income tax.
Why, if a policy was loaned by gift, the recipient will have
purchased the policy as to the outstanding loan obligation with the amount of
the loan is to accept the purchase price.
And by the Tax Code, the purchase of an insurance benefit
from the current political life is taxable income to the purchaser if the
purchase price is higher than the base of the dispenser in politics.
Example: A father has his own life, which has a cash value
of $ 100,000 to $ 500,000 insurance policy on his /. It has a cost basis of $
60,000 in politics. He borrowed $ 90,000 from the cash surrender value of the
policy reduced to $ 10,000 then made a gift of a child policy.
The result is that the child shall have acquired as the
policy to take over the loan obligation of $ 90,000. Therefore, this policy,
the $ 410,000 income tax base for the child when paid rather than tax-free.
