Federal Estate Tax Exemption in 2019

There have been many changes in how estates have been taxed over the years.

These tax changes have affected the purchasing decisions on life insurance for the affluent families throughout the United States.

The biggest change to the estate tax code was the recent increase in unlimited marital deduction in early 2018.

Under current federal tax law, there is a marital deduction permitting you to leave an unlimited amount of assets to your surviving spouse.

If you leave all your assets to your spouse, no federal estate taxes are owed at the time of your death. Those assets then become part of the estate of the spouse and might be taxed when your surviving spouse eventually dies.

A husband and wife can each get their own exemption of $11.4 million, meaning a couple will be able to give away $22.8 million tax-free in 2019 (provided they have not made prior lifetime gifts), but it’s not automatic.

An unlimited marital deduction allows you to leave all or part of your assets to your surviving spouse free of federal estate tax. But, to utilize your late spouse’s unused exemption, an election called portability needs to be made on the estate tax return of the first spouse to die.

The portability election of the federal estate tax exemption simply means that if one spouse dies and does not make full use of their $11,40,000 federal estate tax exemption, then the surviving spouse can make an election to exercise the unused exemption and add it to the surviving spouse’s own exemption.

This means that a married couple can pass on $22,800,000 to their children free from federal estate taxes in 2019.

The estate tax rates of between 18-40% apply to the value of the estate above the exemption amount.

So, you do not get hit with a surprise federal estate tax bill, we recommend to always plan a head of time and do some estate insurance planning with a qualified agent and attorney.

Funding a Survivorhip Policy with an ILIT

A more complicated method estate planning with life insurance involves creating an Irrevocable Life Insurance Trust (ILIT). An ILIT is often tines referred to as “second to die life insurance trust”.

You should consider an ILIT if the total assets in your estate will exceed the current 2018 exemption amounts.

How much does a irrevocable life insurance trust cost to have setup?

A qualified estate planning attorney will charge you $1,000 – $4,000 to establish an irrevocable life insurance trust.

This pales in comparison to the amount of money you can save in estate taxes by having a properly structured ILIT integrated with estate insurance.

Here is an outline for establishing an Irrevocable Life Insurance Trust and funding it with a survivor policy as part of an overall estate planning strategy.

First, you want to have an Irrevocable Life Insurance Trust set up where the trust is the owner and beneficiary of the life insurance policy.

It is important to remember to have your trust created before the life insurance is purchased and drafted by a qualified estate planning attorney.

Then, purchase a survivor insurance policy (second-to-die life insurance) from a reputable insurance company and qualified insurance agent.

Couples normally gift the amount money required for the premium to the Irrevocable Life Insurance Trust (ILIT).

The Irrevocable Life Insurance Trust will make the required premium payments to the life insurance company.

Since, the trust is owner and beneficiary of the life insurance policy, the benefits are not included in your taxable estate.

Upon both of your deaths, the proceeds from the survivorhip insurance policy are then paid to the trust.

The trust distributes the life insurance death benefits as specified in your trust document.

Survivorship Life for Wealth Transfer

A survivor policy also allows moderately wealthy families the opportunity to leverage current assets to maximize their total net worth.

Joint survivor life insurance allows wealthy couples to contribute a manageable premium to eventually pay out a much larger death benefit to pass down to their children.

So, if your goal is to pass down the maximum amount to your children, a survivor policy can be excellent long term investment.

How good of an investment is life insurance for wealth accumulation?

Whether, a survivorship or second to die policy is a good investment depends upon the rate of return of the life insurance policy compared to the rate of return that would have been earned in other family investment such as stocks, bond, and real estate.

Keeping in mind, that the sooner you die, the higher the rate of return on the premiums paid. A more useful approach is to view a second to die policy as conservative asset class.

When evaluating wealth transfer insurance coverage for our clients, we always provide illustrations showing the internal rates of return on the death benefit at various ages.

These are the rates of return would need compare to your other investments to make sure second death insurance is good way to build your estate.

Another reason why the rich invest in life insurance is that insurance company allocate the premiums into taxable investments while the death benefit is paid to your children income tax free.

The simplest way to include life insurance in your estate plan is to name your children as the primary beneficiary of your policy.

This method is the most appropriate when your assets fall below the current federal tax exemption amount.

We find this structure best for wealthy families trying to maximize their total net worth but, who are not concerned about paying estate taxes.

Funding a Survivorship with an Annuity



Most people looking at a SUL insurance as a wealth transfer strategy have considerable assets. This means money which is available for investments like annuities, stocks, and mutual funds.

Many affluent clients want to know best strategy to fund their joint survivor life insurance policy.

Should you pay for your policy with one time lump sum payment or with a series of payments?

This seems like a logical question because you could eliminate the need to pay for the policy each year for the rest of your life.

However, unless your survivor policy is part of a more complicated estate planning strategy making limited payments is normally not recommended.

So, how can you avoid having to pay your premiums fro your entire life?

There is a better method for funding a survivorship policy using an annuity arbitrage strategy.

They strategy will also eliminate the concern of how the policy will be paid in the future because of the simplicity of setting it up ahead of time for family members!

Annuity arbitrage is the simultaneous purchase of a survivorship ife insurance policy and a single premium immediate annuity on the same person(s) but from different life insurance companies.

The goal with an annuity arbitrage is for the annuity to generate a better interest rate compared to interest earned on the cash value within the life insurance policy. Thus providing you with the guaranteed cash flow needed to pay all future insurance premiums.

Annuity Arbitrage with your IRA

Many wealthy people have a significant portion of these assets in Individual Retirement Accounts (IRA’s) which require you take a required minimum distribution after reaching 70.

Here is an excellent strategy for people to fund a life insurance policy who have assets in IRA investments.

Instead of putting your these funds into another taxable account, you could use your required minimum distribution to fund your second to die policy premiums.

A great method for paying for your policy is with using either a fixed indexed annuity with an income rider, or using single premium immediate annuity (SPIA).

Here is how the process works: