Estate Planning and Community Property Law Journal
he federal estate tax can be particularly destructive to estates where there is a desire to pass on legacy holdings to succeeding generations. The estate lacks adequate cash for families to pay the resulting taxes. Therefore, life insurance premium financing may help families pay the estate taxes. An estate planning strategy utilizes life-insurance-premium financing that generates a ready cash pool to pay estate taxes is not universally applicable, but it can provide a cost-effective option for legacy preservation.
Life insurance is often used as part of an estate plan to generate and maintain separate cash reserves to pay death taxes; however, life insurance proceeds may be included in the decedent's estate when calculating estate tax liabilities. The Irrevocable Life Insurance Trust is normally used as an estate planning tool when life insurance coverage is an option; however, difficulties can arise so legal and tax professionals should be well-schooled in the details of the supporting life insurance products, particularly with respect to how the cash value growth of the policy directly affects the end results of the estate plan. Another option is premium financing, which uses loans to help pay the premiums on life insurance policies.
While the benefits of premium financing are many, it is the individual landowner who must ultimately weigh the risks and rewards of each financing option and decide whether the rewards tip the scales in favor of this estate planning strategy.
Lee Lytton, “Save the Land from Uncle Sam”: Using Life Insurance Premium Financing in Estate Planning, 2 Est. Plan. & Community Prop. L.J. 421 (2010).