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Estate Plan & Trust

Saving Estate Tax Using Life Insurance

posted Oct 16, 2009 4:10 PM by Hong Lu [ updated Nov 7, 2009 11:54 PM ]

If you are 50 year old and your net worth is more than US $5 Million today, you may be subject to huge estate tax in 40 years since your assets continue to grow due to appreciation. Your today’s net worth will become US $20 Million after 40 years even at a moderate 3.6% annual return.

If you are US citizen, you are responsible for estate taxes of all your assets including those of overseas (please discuss this with your CPA). If you can not avoid paying estate taxes, the next best thing you can do is to pay estate taxes by leveraging only a small portion of your out-of-pocket expense today if you plan early and right.

If you are insurable, life insurance is an excellent means of leveraging when it comes to finance your estate taxes using a small portion of your today’s dollars. With today’s economic conditions, it is even possible to borrow money to pay for life insurance premium, further leverage your money.

Life insurance, together with annual gifting and charitable giving can preserve your assets, leave a legacy, and create good causes all at the same time. As a result, you can have 100% peace-of-mind.

A 50 year old couples, need to spend around $1 million in 20 years in order to obtain $7 million life insurance (6 times the leverage) using traditional method of paying premium. This allows them to save $6 million in estate taxes. But if they can qualify to finance their premium, they only need to spend $500,000 in 20 years to obtain $10 million life insurance (20 times the leverage).

Estate of Famous Persons

What was Owned What the Heirs
Got – Net Asset
Percentage Shrinkage
Marilyn Monroe 819,176 370,426 55%
Franklin D. Roosevelt 1,940,999 1,366,132 30%
Robert H. Lehman 2,717,643 1,560,222 43%
Elvis Presley 10,165,434 2,790,799 73%
Walt Disney 23,004,851 16,192,908 30%
Andy Warhol 297,909,396 291,051,194 2%
Alwin C. Ernst, CPA 12,642,431 5,518,319 56%
J.P. Morgan 17,121,482 5,227,791 69%