Tip of the Week: Life & Death (7/24/00)

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	Life and Death Financial Tip of the Week by Deloitte & Touche OnLine July 24, 2000

When is life insurance included in an estate?

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Life insurance proceeds are a large portion of many estates. Typically, when life insurance is acquired by a couple, one member is listed as the owner of the policy and the other as the beneficiary. Under these circumstances, the life insurance proceeds will be included in the purchaser’s gross estate and taxed accordingly. If not consumed, those same proceeds will be subject to estate tax again in the survivor’s (beneficiary’s) estate.

Of course, the best way to avoid estate taxes is to keep valuable property out of the estate. The introduction of the unlimited marital deduction has eliminated the tax savings available under prior law for gifts of life insurance to one’s spouse. This is true because simply naming one’s spouse as beneficiary results in 100 percent of the proceeds qualifying for the marital deduction. Thus, it would seem that current planning techniques suggest the use of an irrevocable life insurance trust for the married couple. If the insured is single, an outright gift of the life insurance policy to the beneficiary continues to be an attractive estate planning tool.

See our guide Preserving and Transferring Wealth for more estate planning strategies.