Paying
Estate Taxes
How Will I Pay Estate Taxes?
Estate taxes. It’s not enough to simply
know they exist, and to know strategies to minimize them. When it comes
down to it, you need to plan how you and your family will eventually
pay them.
The Estate Tax Dilemma
Estate taxes are generally due nine months after
the date of death. And they are due in cash. In addition to estate
taxes, there may be final expenses, probate costs, administrative fees,
and a variety of other costs. How can you be sure the money will be
there when it’s needed?
Estate Tax Options
There are four main sources of funds to pay estate
taxes. First, your current savings and investments. You or your
survivors can use savings and investments to cover the costs of estate
taxes, probate fees, and other expenses. This is often a sound
alternative. However, sometimes savings and investments may not be
sufficient. And if those savings were earmarked for other financial
goals, you may need to rethink how you will achieve those
goals. Another option would be to borrow the money.
Unfortunately, with this option you not only have to pay the estate
taxes, but you or your survivors will be forced to pay interest on the
amount borrowed to pay estate taxes. Remember to consider how your
family’s credit standing will be affected by a death in the
family. The third option involves liquidation. If estate taxes
are larger than the cash available to pay them, you may have to sell
valuable assets such as the family home, the family business, or other
assets. Hopefully, they will sell for what they’re worth. In
many cases, however, they don’t. The fourth
option one that is often a prudent way to pay estate
taxes is life
insurance.
What Can Life Insurance
Provide?
Life insurance can provide a timely death benefit,
in cash, that can be used to pay estate taxes and other costs. And it
will be paid directly to the beneficiary of the policy, without being
subject to the time and expense of probate. Granted, life
insurance does require premium payments. However, if appropriate to
your situation, life insurance premiums can be looked at as a
systematic way of funding future estate taxes. You get guaranteed
liquidity and a death benefit that is generally free from federal
income taxes. Indeed, the financial protection provided by life
insurance can be invaluable to those who have the burden of paying
estate taxes your loved ones. The cost and
availability of life insurance depend on factors such as age, health,
and the type and amount of insurance. Before implementing a strategy
involving insurance, it would be prudent to make sure you are
insurable. As with most financial decisions, there are expenses
associated with the purchase of life insurance. Policies commonly have
mortality and expense charges. In addition, if a policy is surrendered
prematurely, there may be surrender charges and income tax
implications. Any guarantees are contingent on the claims-paying
ability of the issuing company. Before you take any specific action, be
sure to seek professional advice.
Coping with estate taxes may be a difficult
proposition for you or your survivors. When it comes to paying them,
consider life insurance. It may be a strategy worth considering, and
overlooking it could be costly.
If you are considering Retirement planning , call
for a Free Consultation today.
Call Today - 1-334-309-4181
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