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 ...
I pay 3000 per year for almost a million in insurance. I will never pay in a million, but I will almost certainly die before the term is up.
How is that ‘betting against myself’?
I can give my children more than I ever cod by sticking that 3K in a bank.
“Set up your estate and trust to take care of all of that.”
Yes. I agree. Set up a trust, which I have done. Next question, how is the trust to be funded? I own a small business and took a significant hit over the last two years due to government incompetence and had to take on debt in order to keep our family business afloat. I don’t want my heirs (including my wife) to be responsible for that debt and I want my wife to be able to continue to live at our level of lifestyle.
Actually, part of the debt came from a whole life policy that is over 40 years old with a dead face value of $49K. That policy is now worth over $100K.
Kindly explain how that will happen if my debt remains when I pass and without insurance to cover that cost/expense?
“You care about you much more than anyone else cares about you....”
UNTRUE. Not in my family.
Insurance companies are thinking about one main thing: their profits. If they weren’t then they shouldn’t be in business and soon will probably not be in business.
Insurance companies, like government only government is much worse, say they are there for you but they are really there for their own profit.
You care much more for you and your costs than any insurance company and especially than any stupid distant government bureaucracy.
“Insurance companies are thinking about one main thing: their profits.”
Well, YES! I thought that’s the type of system we have. Are you suggesting we stop doing business with any company that strives to make a profit?? Not me. In fact, I want just the opposite. I hope they do make a reasonable profit and will be around for a long time when I need them again.
BUT, you still did not answer my original question (#42):
“Kindly explain how that will happen if my debt remains when I pass and without insurance to cover that cost/expense?”
My goodness icclearly, that is a problem that you need to work out with your financial counsellor or trust advisor, not here on FR. Many of them think that life insurance is the cat's meow, but I think they can help you maximize your profits without insurance.
I'm an attorney and I'm doing fine without any insurance. But I believe in the market system free from government interference and I believe it is reasonable to expect God to help and profit me.
It helps to have faith in God rather than faith in man (which actually derives from fear).
“My goodness icclearly, that is a problem that you need to work out with your financial counsellor or trust advisor...”
Yes. My attorney created my family trust.
I think we probably agree more than we disagree. I absolutely believe our country is headed toward a cliff. And, history supports it. If we are here in the year 2030 (probably sooner) and look back, I’m not sure we will recognize what we see as a country today. In fact, it’s hard to look back 10 years and say we’re still the same country!
Think of it like the flappers (about 80+ years ago) who thought the ‘20s would last forever or the families in early 1941 who thought we had overcome the great depression only to see a world war of great proportions; or think about the people in January of 1861 (a little less than 80 years before 1929) who thought the good times would last forever only to see us kill ourselves at a rate never before seen in history. Or even the citizens of the Crown in what is now the U.S. in early 1775 (about 80 years before the civil war). Notice the time frames. Not exactly 80 years, but an average of about 80 years (normal human life span).
I like a modified version of my favorite president’s quote, “trust but verify.” My version is “doubt but verify.”
Where we probably disagree is on the subject of insurance. I look at insurance like buying a futures contract. in 1998 my business was booming and I wanted to lock in my future earnings with the belief that nothing lasts forever. I loaded up on term and convertible term life. Then about 13 years later at age 69 I was diagnosed with cancer and kidney failure. That was the end of my buying any insurance for the remainder of my life. I have kept that insurance and in retrospect, it was the best decision I could ever have made.
I put my head on my pillow every night knowing that my family will not be on the street or be responsible for debts if I don’t wake up the next morning. To me, that is worth every penny I pay to the profitable insurance companies.
God helps those who help themselves. He sure has me!
There are many good reasons to own insurance even if the insurance companies do make a nice profit. It is a win-win!
No one (and I mean no one) is guaranteed anything but their current breath — no matter how smart you may think you are or what you have accomplished in life (unless you are in the league of Elon Musk, Jeff Bezos, etc). Insurance is a lock on your future income and thank goodness it is there for many of us!
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