You’ve worked hard for your money. As you contemplate passing it on to the next generation, keep in mind there’s someone who wants his cut: Uncle Sam. The good news is that there are a number of ways to make sure your loved ones get what you intend them to.
The first is by having a will. And we’ve partnered with FreeWill to help you get a will for free in under 20 minutes today.
2. Life insurance
The second way is with life insurance. It allows you to leave an inheritance without your beneficiaries having to pay income tax on the money they receive. So if you buy a policy with a $250,000 death benefit, your heirs will actually get $250,000. Sounds like a good deal, right?
3. Estate taxes
Estates that are worth a lot of money can also owe estate taxes. Life insurance can help offset that amount, so you can pass on all or most of your estate.
Death benefits are paid income tax-free to your beneficiaries, but life insurance proceeds are generally considered an asset of the estate for estate tax purposes. If you anticipate having an estate tax liability, you should consult a competent estate planning attorney to make sure the life insurance ownership is structured properly to avoid being considered an asset of the estate. Keep in mind that neither Nationwide nor its representatives give legal or tax advice.
4. Life insurance trusts
You can create an irrevocable life insurance trust to remove life insurance proceeds from your taxable estate. An individual creates a special kind of trust that is designed to efficiently own life insurance policies. The proceeds of any life insurance policies owned by this trust will not be subject to the estate tax at that individual's death.
Learn more about taxes on your life insurance policy by talking to your insurance professional about using life insurance to maximize the amount of money you leave to your heirs.