Posted on 01/29/2022 2:49:51 PM PST by nickcarraway
Does second-to-die insurance create a tax bonanza? Not exactly.
“I’m thinking about a second-to-die policy that would pay off after my wife and I are both gone.
“Here's some proposals the agent came up with, based on gifting premium dollars to a trust owned by the two boys. I need to work through all the tax wrinkles, but ultimately it’s a series of bets, most importantly that we both die after one premium and the boys stick it to the insurance company for the full death benefit. After that the payoff diminishes in magnitude.
“Would love to hear your thoughts if you dive into it.”
Dan, Connecticut
Second-to-die: the marvelous insurance policy that magically creates a tax-free payoff to your kids. They can use the money to pay death taxes on the rest of your assets.
Except that the timing of the payoff does not align with what your family needs. Also: The tax-free benefit turns out to be not so magical. Also: Future premiums are a little murky.
These policies, sold to a couple nearing or in retirement, have a death benefit that is activated only when the second parent is deceased. Second-to-die is such a mouthful. Can I just say that what the agent wants you to have is an S.T.D.?
At first blush the S.T.D. tax exemption does look quite powerful. One element of it is that a life insurance policy’s death benefit does not constitute taxable income. Thus, if you take out a $1 million policy and pay one $10,000 premium, and the next day get pushed onto the subway tracks, your heirs make a $990,000 profit but don’t pay income tax on that profit.
(Excerpt) Read more at forbes.com ...
None of the effort expended in this investigation is productive. This is just more work to figure out the arbitrary and capricious tax code. All the necessity of doing this would go away by scrapping the tax code and instituting a national retail sales tax. Of course, then both tax professionals and also IRS agents would need to find productive work to do instead.
Answer: Insurance is a bet against yourself. Insurance companies pay Actuaries thousands of dollars to figure out the odds in the insurance company’s favor. The result is the price of insurance. Nothing wrong with that. Otherwise the insurance company would go out of business.
Insurance is based on fear and that is how insurance companies make money.
So the odds are you lose money with insurance. So buying insurance is betting against the odds and betting against yourself because of fear vs. not buying insurance by betting with the odds in your favor because of reasonable faith.
“Insurance is a bet against yourself.”
Life insurance is not betting against yourself. You are assuming you pay more than what you will get and that simply is not true. You have obviously never purchased life insurance.
Life insurance companies DO NOT have actuaries who simply look at your payments versus a payout and price insurance accordingly. Those actuaries also take into account investments the life insurance companies make to cover payouts.
What you are really doing is investing money every year into a fund that will pay out if you die. It is an investment, not a bet against yourself.
“So the odds are you lose money with insurance. “
No, that is not true.
You’d do better investing wisely (in something like a low-managed index fund) than paying a life insurance Co. do it for you. The odds are you still come ahead without paying for insurance.
“The odds are you still come ahead without paying for insurance.”
No, you won’t. The average person isn’t that smart. You’d lose you money long before it paid off.
Isn’t the exemption very high (higher than most families need worry about)? I can see some families with family businesses or a handful of assets/properties that might have book value without enough liquid assets. Gifting or even selling them while carrying the notes on these assets during their lifetime might be an option. The kids will get the appreciated value when that last day comes.
If my wife dies before me, I am cancelling all my life insurance. I know what a cremation costs. Taxes? Probate?
Who cares about that stuff. My kids can do what they want. I am not going to worry for a second about any of that.
Someone sold you a whole life policy didn’t that?
No, stupid. I know math, insurance, and term life policies. Maybe you should grow up and learn a little.
Then you know that term insurance is an expense, not an “investment”. Only a fool thinks of it that way.
No, you will be dead and when you are dead you don’t care.
Your kids should though. You could gift them the money, the max yearly amount allowed per giftee is $14,400 before triggering gift tax. (That’s if it hasn’t been raised in the last year or so).
You can gift money to heirs to reduce the amount of your estate, and you can reduce it much further by passing real estate to your heirs before you die. They get it at the current basis, no tax event.
Those are the easiest and most often used tools for avoidance of inheritance tax, there are others.
Well, you think the average person is stupid and certainly the insurance companies want people to think they’re stupid. So does the government. You’re with the Left on this one - on the wrong side of the argument.
Code Toad, I just realized you’re on my no Fly Zone List marked as “unreasonable and can’t be reasoned with”. Should not have responded to you because you are a dead end.
Go bug someone else.
Bad idea, unless the democrats change the step-up-in-basis rule which has been in place the last several decades. It's better for your heirs to inherit your property after your death and their basis becomes the fair market value of the property at the date of death, instead of your basis at the date of "gift". Gifts of property are also subject to the annual gift limit so you aren't evading anything by quit-claiming property during your lifetime.
Our 50 something age wise, sons agree with you.
They have told both of us, if and when we leave permanently, and all our bills/taxes are paid with no real debts nor assets, are left over:
We have then practiced perfect wealth management, and they plan to do the same with their adult kids.
“They can use the money to pay death taxes on the rest of your assets.”
Never imagined reading anything remotely like that.
Don't be so quick to dismiss whole life policies. In the early 80's I bought a WL policy from a friend (admittedly I didn't know much about them at that time) and we diligently paid the premiums for several years.
We decide to buy a new house and find we need more money because things like door knobs, hinges and cabinets cost extra. We found our modest "investment" in the WL policy had over $30,000 in cash value in less than 10 years--and it was only a $100,000 death benefit. That particular policy was exceptionally well invested and allowed that much accumulation in a short period of time.
Could we have made a greater return on a more "traditional" investment? Probably, but not likely. Why? Because (A) We wouldn't have made any investment, and (B) We wouldn't have had $100,000 of life insurance should I have died at that time.
I doubt most WL policies would have performed as well as that one did then, and most today aren't nearly that good, so remember, as with anything else YMMV.
Your an idiot to thinks a 25 year old who just got married shouldn’t buy a $1 million life insurance policy because somehow he could otherwise invest that money and magically have a million dollars.
We smart people need to the tell the stupid people to shut the hell up. We’re tired of your drunken comments from a stupor of a soap box.
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