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Lassiter: Multiple uses for Second-To-Die Life Insurance

Posted: December 4, 2016 5:00 a.m.

Second-To-Die or Survivorship Life Insurance became a very viable product after the 1982 TEFRA legislation. This act allowed estate taxes to be postponed until the survivor passed away, and for the taxes to be paid at a discount.

Currently, the federal estate tax exemption stands at $5,450,000 per person ($10,900,000 per couple) so there is not a large number of couples with estate tax exposure in 2016.

That doesn’t mean, however, that this product has gone the way of the Edsel. Survivorship Life premiums may be lower than insuring one life and the policy may be issued even when one person is uninsurable. There are several very beneficial uses for Second-To-Die Life Insurance so this article will outline a few of them and how they might fit into your planning.

Retirement Plan Taxes

All qualified plan payouts are subject to ordinary income taxes, and I know of no way to avoid this, particularly for your children. Survivorship Life Insurance can pay these taxes at a big discount and can keep your retirement plan from becoming THEIRS! (The IRS’s)

Charitable Bequest

We all have a favorite charity whether it be our church, college or civic organization. Veterans, medical and literacy support groups also come to mind. There are very few of these organizations that will decline a gift of life insurance as there is very little maintenance involved. For you, premiums are tax-deductible as a gift to charity and the death proceeds are not includable in your estate if you have no incidents of ownership in the contract.

Support of Young Children

For parents of young children, there is a huge risk for the children if both parents die early. A Trust Owned Second-To-Die life policy would allow the trustee to collect the insurance proceeds and provide for their children through these trust funds.

Remarriage

In an era of second or third marriages and the blended families that result, a Second-To-Die Life Policy can help balance the distribution of assets. Mom and Dad can buy the policy through a trust set up for selected children.

Business Sale

Consider a couple who own a business and intend to stay active in the business until their death. A key employee or prospective purchaser would purchase a Second-To-Die policy on the husband and wife. At the death of the survivor, the purchaser would collect the proceeds and complete the sale.

Special Needs Children

Families of children with special needs face different financial and emotional challenges. A direct inheritance may cause the loss of income and health benefits, including Medicaid, and Supplemental Social Security.

A special needs trust funded with a Second-To-Die life policy can be an excellent planning tool. Utilize a special needs trust attorney here to design the trust.

CD Replacement

Many people save money in CDs specifically to leave to their children or grandchildren. Current rates are so low that a 2% CD would take 36 years to double and that’s before taxes.
Utilizing these dollars in a single premium Second-To-Die policy could generate some significant tax-free dollars for your intended heirs.

Depending on the desired usage, Second-To-Die Life Insurance can create a significant amount of tax-free dollars at a discount for your family.

Mike Lassiter is a Chartered Life Underwriter and Chartered Financial Consultant. He is a Licensed Insurance Counselor and a Registered Investment Advisor. He can be reached at 770-786-2781.

 

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