Life Insurance Planning After the 2010 Tax Act

For some wealthy clients, there's a two-year golden opportunity to maximize enhanced funding strategies and leverage the death benefit. Don't miss out

The Dec. 17, 2010 enactment of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Act) added the concept of portability and dramatically increased the gift tax exemption to $5 million per individual ($10 million for married couples). (See “New Rates, New Exemptions, New Gifting Opportunities,” by Douglas Moore and David A. Handler in the February 2011 issue ofTrusts & Estates, p. 20.) For wealthy clients, the combination of the enlarged gift and generation-skipping transfer (GST) tax exemptions create exciting planning opportunities over the next two years. But what are the ramifications of the 2010 Tax Act on life insurance planning?

The life insurance needs of married couples with estates of less than $10 million will most likely center on non-tax situations, such as funding a business buy-sell agreement, equalizing the estate among children, providing liquidity for second marriage situations or providing for a special needs heir. The $5 million estate tax exemption may simplify insurance ownership by reducing the complexity of planning and the need for trusts in some situations.

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