Life Insurance And Estate Planning

Introduction

Estate tax liability is the tax imposed on the property by the government when the owner of the property dies and leaves the estate to the heirs. A fair market value is considered in calculating the gross estate which includes real estate, saving accounts, personal properties, collections, family corporations and more. The gross estate will assist in coming up with the net asset and finally understand the estate federal liability. Following the death of the father, there are many things that the son should do to protect the properties and enjoy the economic benefits. In other words, he should possess an incident of ownership by changing the beneficiary and making possible changes to secure the benefits. Generally, there are important actions that should be taken to conclude the case that is; calculate the gross estate, deduct all the liabilities, evaluate the value of the estate, and transfer ownership.

The federal estate tax is imposed on the property beneficiaries after figuring out the exemption amount. The issue at hand covers the subject of the estate planning where estate tax considerations become the primarily important thing (Gardner et al, 2008).  The major purpose of the estate plan is to determine the amount of income that the beneficiary should receive.

 The case at hand states that the property owner had unused unified credit and had no deductions at the time of his death.  Having understood the case, it is important to apprehend that the estate is subject to the federal taxes and the taxable value of the estate will be calculated by using the gross value of the estate (Gardner et al, 2008). Even though there were no deductions at the time of death, there must be a calculation in the ‘Gross Estate' to figure out the net value of the estate. In this case, it is the role of the executor of the estate to calculate the gross estate such as real estate, stocks, taxable lifetime gifts, bank account, investment and personal property (Gardner et al, 2008). The purpose of calculating the gross value is to deduct any liability such as funeral expenses, administrative costs and more and come up with the net estate value.

 To arrive at the client's estate tax liability, it is important to understand the federal estate tax exemption. The latter plays a significant role in allowing the estate owners to pass their property to the heirs and it also reduces the estate tax rates (IRS, 1988). Thus, understanding the total exemption available is important as the amount will assist in calculating the total estate tax liability. In solving the case, I would inform the deceased client's son that the estate liability tax will be evaluated by calculating the net estate and the unused unified credit will be considered. The current federal law affirms that the executor should calculate the gross estate including life insurance proceeds, gifts, wealth transfers and more.

 

 It is also important to understand that the deceased client's son needs a legal title to the property.  In this case, the incidents of ownership mean that the deceased has the right or the power to transfer police ownership and change the life insurance policy. For example, focusing on the life insurance policies, the father had agreed on insurances policies such as universal life or term life or whole life. In this case, the beneficiary has the power to cancel the policy since the proceeds of life insurance are subject to estate tax (Stephens, 2008).

 

 

 For the deceased to be insured the incidents of ownership, he is supposed to change a beneficiary and personal life insurance policy. By so doing, the decedent will create an investment and derive income, he will be able to manage the property an income and he will have the right to use and control. The important thing in possessing an incident of ownership is having the ownership of the life insurance. Thus, the son should own the policy to enjoy the death benefit, reduce the estate tax burden and the children will also own the policy (Stephens, 2008). In general, the major fact that would have to change to receive the insurance proceeds from the insurance company is to transfer the ownership.  In the process of ownership transfer, the decedent may also create a life insurance trust for the purpose of legal control.

 

 

Conclusion

 

            The above case requires an estate planning to help the deceased client's son figure out the taxes that will be incurred and the amount of benefit that will be gained. The heir need to understand the tax liability and in this case,  it is important to calculate the market value of the property which is done by calculating the gross estate, make deductions and figure out the net estate. Also, the heir is required to transfer the property such as change the life insurance contract, cancel the policy and create an Irrevocable Life Insurance Trusts. Generally, it is easier to know the estate tax liability by measuring the value of the estate, subtracting the deductions and figure out the net estate.

 

 

 

Reference

 

Gardner, R., Daff, L., McClintock, M., & WealthCounsel. (2008). WealthCounsel estate planning

strategies: Collective wisdom, proven techniques. Kansas City, Mo: Wealth Builders Press.

 

Stephens, G. R. (2008). Estate planning with life insurance. Toronto: CCH Canadian.

 

United States. Internal Revenue Service (IRS).  (1988). A selection of Internal Service Tax Information

Publications.  Volume 4-5.  The Service