I noticed this article by Marshall Loeb who advises about insurance policies that bring your estate income to a new taxable level.

Sheldon from Conservest had the following comments:
"In most cases life insurance policies are set up to help pay your estate taxes.

If you have parents that have a large estate and want to pass it on to there children you would advise them to take out a joint last to die policy, have the children pay for the policy and have them made as beneficiares and then they can use the policy to pay the estate taxes.

That example is the best, people use life insurance to plan for extate taxes. "

This is a really excellent example of how life insurance income could affect estate taxes. It's really important to plan for these eventualities.

MARSHALL LOEB'S DAILY MONEY TIP
irrevocable-beneficiary info

NEW YORK (MarketWatch) -- Life insurance is an important ingredient in making sure your family is taken care of after you die. While income tax does not apply to a life-insurance payout, the dreaded estate tax does.
If you have a substantial policy that could push the value of your estate above the tax threshold (currently $2 million) you can create an irrevocable life-insurance trust, a legal entity that will own the policy while you're alive and pay the proceeds to the beneficiaries you've designated after you die. A trust works with both cash-value (whole, universal) and term policies.
You'll need an experienced attorney to draw up the papers and you must convince the IRS you've given up ownership of the policy so you won't be able to alter its provisions, change who the beneficiaries are or pay the premiums yourself. (If that's giving up too much control you can give a policy outright to your children but if they're minors a trust probably makes more sense.)

Articles from April 2006
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