This is why a big life insurance policy placed in an Irrevocable Life Insurance Trust (ILIT) is so important to a family business.
The untaxed insurance proceeds are there to pay the estate taxes, allowing the business to stay in the family.
That’s how Forbes did it, farmers do it, it’s simple enough that nearly anyone can do it.”
What kind of annual premiums do these policies cost??
These are ordinary life insurance polices, so they don’t cost any more than a policy normally would.
The key is that they are owned by the ILIT, taking them out of reach of the taxman. This requires an attorney to draft the ILIT, and the insurance company will often provide a draft document for his review.
Because of the onerous estate tax rates, this can make the difference between a family business struggling through a generation change, or one that can continue on. The estate tax impact depends on a number of financial factors.
Disclaimer; I am a life insurance salesman. I am not trying to solicit business. However, if you want to Freepmail me, and give me ages etc. I can give you a general idea of what it might cost and help you get pointed in the right direction.
I should add something.
Not always, but typically, the estate tax for family businesses isn’t due until the second spouse passes away. Then the estate has 9 months (again typically) to come up with the needed cash.
The insurance companies have a ‘second to die’ policy which pays the death benefit upon the second spouses death, which is exactly when the cash is needed.
The benefit of a second to die policy is that if one of the spouses has a medical problem (say Dad has a heart murmur or worse) that would make him ineligible for a single policy, he can be underwritten for a second to die policy. And often at nearly the same premium as if he had no problems.
In any event the premiums covering two lives, but only paying when the second person dies are generally much less than two separate policies.