Life Insurance Quote reports, Estate planning essential for everyone, not just rich. Cypress Group

April 4, 2010 - PRLog -- : I have a couple of estate planning questions. Is life insurance subject to estate taxes? I know this year there is no estate tax. A friend of mine says they can change the law and make it retroactive. I say they cannot. What is your opinion.

A: Your estate, for tax purposes, is the fair market value of everything you own at the time of your death. The estate includes all investments, personal items, home — basically everything

A life insurance policy is part of the estate. It doesn't matter who the beneficiary of the policy is — the issue is who is the owner. For example, if you had a $250,000 life insurance policy and the beneficiary was your children, that $250,000 would be included in your estate for estate tax purposes.

Many people think life insurance is tax-free, but that is incorrect. It may be income tax-free, but not estate tax-free. Therefore, the proceeds of any life insurance policies are included in your estate.

Many high net worth individuals have life insurance policies, but they do not own the policies personally, they are owned by an irrevocable trust. In those situations, the proceeds are not included in one's estate for estate tax purposes.


As a side note, many people buy life insurance for estate tax purposes. I am very cautious about recommending this strategy. On the whole, it is not something I recommend. However, there are situations where life insurance for estate tax purposes may be appropriate. Typically, those are for estates that are in the multimillion-dollar areas. For the great majority of people, buying life insurance merely for estate tax purposes makes no sense. Buying life insurance to provide liquidity or to support a loved one is a different issue.

As to our current estate tax law, you are correct that at this time there are no estate taxes. When Congress changed the estate tax law many years ago, it was a temporary fix. It was assumed that before 2010 the law would change. However, we all know how Washington works and because of all of the partisan bickering, the estate tax law has not changed.

However, that doesn't mean it won't. Unfortunately, it is possible and constitutionally permissible for Congress to pass a law with regards to estate taxes that would be retroactive to the beginning of this year. In fact, I would go as far to say that it is probably more likely than not that Congress will pass some sort of estate tax law this year and make it retroactive to the beginning of the year.

Congress can and has made laws retroactive.

Most Americans do not have to worry about estate taxes. However, that doesn't mean that you don't have to worry about estate planning.

I don't believe taxation is the most important element of estate planning, but I do believe it is one element. The most important point when it comes to estate planning is making sure your property goes to your loved ones as fast and as painlessly as possible.


I sometimes joke that the goal of estate planning is to make sure that judges, courts and lawyers stay out of your family affairs. The reality is we all are going to leave this great Earth and whether we have a large estate or a very small estate, we all have to make sure we make things as easy as possible on our loved ones.

Most of us want to protect our loved ones and families throughout our lives, so we shouldn't forget about that upon our deaths. Therefore, there's no doubt that if you have a large estate, taxes are a consideration and to minimize those makes sense.

However, let's not forget that estate planning is for every adult, no matter how rich or poor.

Good luck!

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