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The Problem: Deferred Estate Tax Build-Up |
| The Economic Recovery Tax Act of 1981 allowed postponement of estate taxes – through the Unlimited Marital Deduction – until after the death of both husband and wife. While this provides couples with increased flexibility during lifetime, in many cases it places a substantial tax burden on the combined estate when the surviving spouse dies. |  | The Survivorship Life Solution | | Unlike traditional life insurance, which provides protection on the life of a single insured, survivorship life covers two lives with proceeds payable at the second death. As such, it is perfectly suited to deal with the problem discussed above. |
|  |  | | Survivorship Life Insurance provides protection for two lives and alleviate the tax burden left on the estate when the surviving spouse dies. |
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Ownership Arrangements |
| Third party ownership (adult children or an Irrevocable Life Insurance Trust) is often desirable for persons with potential estate tax problems. The policy may sometimes be transferred out of the estate after the first insured dies. If the survivor lives three years after the gift, the full face amount should be out of his or her estate. Questions of ownership should be discussed with an attorney. |
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Advantages Over Individual Coverage |
- Lower premiums – more cost effective than two policies.
- Medical underwriting standards may be eased with respect to one of the insureds, due to second death payouts
- Lower “economic benefit” reportable for income taxes in Split Dollar Plans (often 10 times lower).
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Other Uses For Survivorship Life |
- Key Person Insurance: Where the employer can self insure or absorb the loss of one key individual but not two
- Business Buyout: E.g., purchase of family business from aging parents. Child working in the business owns policy on parents.
- Charitable Gift Replacement: Providers heirs with replacement cash when assets are used to fund a Charitable Remainder Trust
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