Reviewing your Insurance

Tuesday, October 6th, 2009

Some people don’t have the habit of reviewing their life insurance policies.  But bear in mind that an insurance could be a vital part of your financial strategy or estate plan.

You can buy a life insurance policy and make your spouse or children as beneficiaries.  Business owners can also use a buy-sell agreement funded with an attached life insurance so that surviving owners may buy the company’s interest in case of a deceased partner.  In the same token, key-person insurance assures business aid when one of the core employees passes away.

However, there is a downside to this.  Life insurance proceeds form part of your taxable estate and your beneficiaries may be heavily taxed when you pass away.  One alternative around this law would be to allow your children or other beneficiaries to own your policy.  You can give gifts to your kids for the acquisition of the insurance - it’s like pooling their money and buying the policy for you.  Another way you can remove the proceeds of your life insurance from your taxable estate is to get irrevocable life insurance trust.

Life insurance can help you build wealth.  It can also be useful for employee benefits, business continuation, education planning, retirement planning, and estate planning.

Tags: beneficiary, business, estate, estate plan, Estate Planning, law, life insurance, policy, tax, trust, wealth
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USA Death and Taxes

Sunday, August 16th, 2009

In Canada, there is deemed disposition of the fair market value of your property.  The increase in value starting from the date of purchase up to the owner’s death is taxable as capital gain on the financial tax return.  On the other hand, the system in the U.S. works differently.  They impose an estate tax that’s levied on fair market value across all property owned on date of death instead of deemed disposition with potential tax liability.

The future of the U.S. estate tax is the most talked about issue today.  At the end of the year, the current regime would be expired.  This issue is critically important to two groups of people: Canadians owning a U.S. property and U.S. citizens that are living in Canada.  This U.S. tax applies to all citizens, even to those living in other countries.  It also covers non-U.S. citizens who died with properties in the U.S. (like stocks in U.S. companies or U.S. real estate).

Currently, U.S. citizens have a $3.5 million exemption from their estate.  However, non-citizens, such as Canadians owning U.S. assets, would only be entitled to pro-rated exemption under Canada-U.S. tax treaty.  This means that when you have a worldwide estate (like a Canadian home for instance) that would total below US$3.5 million, you don’t need to worry about taxes - for now at least.

Tags: Canada, citizens, death, estate, estate tax, financial tax fair market value, market value, property, tax, U.S.
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Never Ignore Estate Tax Planning

Monday, August 10th, 2009

At this point, a high percentage of Americans don’t need to worry about federal death tax.  Federal government allows tax-free exemption up to $3.5 million net worth for individuals and $7 million combined for married couples if they do some basic planning.  When they don’t have a basic estate plan, they could miss this full exemption and actually pay a seven-figure tax bill.

Currently, the federal law is hoping that in 2010, all states would pass this estate-tax-free.  However, off-the-record word from Congress says that there’s no way this law will survive 2009.  The states are re-evaluating their existing death tax rule.  There are some states that have no death tax, such as Florida.  While others, like Massachusetts or Connecticut have death taxes as high as 10% for a one million estate.

Therefore, it’s foolish to ignore the issue of estate tax.  Imagine people evading the local sales tax in their state, purchasing in another state, moaning about their annual income tax, yet doing nothing to plan for the largest tax they’ll ever pay?  It sounds ridiculous but it’s so common.

Ben Franklin may be right when he said “There are only two guarantees we have in life - death and taxes.”  And when death comes, taxes are voluntary.  Therefore, plan your estate wisely.

Tags: Americans, Ben Franklin, death, death tax, estate plan, Estate Planning, estate tax, federal, law, tax
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Deal with Estate Taxes: Plan Ahead

Thursday, July 23rd, 2009

The golden rule in estate planning is: “Do it before you need it.”  Prudence actually suggests that we plan ahead because only a few people know when death can fall upon us.

In Oregon, there may be some last-minute opportunities for the residents despite its imposition of death tax on top of federal estate tax.  When federal estate tax exemption has been scheduled to dramatically increase, many states including Oregan became nervous since the federal exemption 10 years ago was $600,000 with 55% top marginal tax rate on the excess.  Simply put, the feds collect a large tax from a decedent’s estate - this includes taxable gifts that are made by decedents, and then, throws a portion back in state credit form.

Most states simply accept this “throwback” by imposing tax on its residents - this is the exact amount of credit permitted by feds.  However, when the feds have lowered the rates and increased exemption (currently $3.5 million and 45% flat tax rate), the state credit was also phased out.  Oregon reacted by simply enacting its death tax.  In other words, if the gross estate of the decedent exceeds $1 million (fixed Oregon exemption today), the excess will be taxed by the state.

Tags: decedent, Estate Planning, estate tax, feds, Oregon, plan, tax
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