Whole Life Insurance to Cover Death Taxes

Written by Neil Mansell

How a Whole Life Insurance may help to cover considerable expence? Have you ever thought about what exactly wealthy celebrities do with the money when they pass away? Sure, we all pay taxes in different ways and amounts. But it happens so, that some people pay significantly more in taxes by the time of their death depending on their assets than the others.

In this world nothing can be said to be certain, claimed Benjamin Franklin, except death and taxes. 

In some cases people equate the "death tax" with the "dumb tax" simply because of its basis of assessing a tax on your successor just because of the fact of your death. Whilst writing this, current tax laws impose a top 35% tax rate with the exemption of five million US dollars. But the administration of President Obama is trying to lower this exemption to USD 1,0 million. In case it happens a whole life insurance can be a helpful tool to almost anyone.

Whole Life Insurance

However, rich & famous who are in possession of USD 5 million US dollars in assets, should count upon a tax bill of 35% of their estate to go to the USA treasury. Here's a comprehensive example: let's say a famous Mr/Mrs Moneymaker owned an estate worth USD 10 million at the time of her/his death and had a bill for 35% of death tax  sent to the heir. The total tax bill would be USD 3.5 million (35% off USD 10M). Which would leave the remainder of  6.5 million US dollars. Indeed, this is still a lot of money for the most of common people, but it is not the case now.

Well, this is simple to calculate that legatiee still owns USD 6.5 million left and it's not that bad. However, what many people don`t understand is that how will his/her family pay out USD 3.5 million in taxes? Most of wealthy business and media personalities simply don`t have cash laying at a bank account or in the bedroom's wardrobe. Most likely, the heir would be forced to sell the assets at a significant discount to cover the IRS.

However, there is a smart solution. Instead of selling off assets or borrowing money to pay the IRS off if sudden relative's death occure - buy a whole life insurance. It is a capital, which pays a tax-free premium in the event of somebody’s death, which could be used to pay the tax bill off or leastwise to cover a considerable part of it. Thus, if his/her tax bill was for USD 3.5 million and she/he owned a life insurance policy that paid out USD 3 million when at the time of death, heirs now owe the IRS USD 500,000 which is a lot easier to manage than finding of the amount of a whole USD 3.5 million, isn't it?

Most of well-to-do  people already know this smart solution and this is why an innumerable amount of them already own significant whole life insurance policies which help their legatiees to pay off the death taxes when it becomes due.