Get ready today to not be ready for a fiscal tsunami | Tri-State Neighbor

Dear Michael: We have watched land sales in the area and now our net worth is approaching the authorized $23 million. If it weren’t for the debt we carry – for which we have temporary insurance to cover – we would be in real trouble. What should we think about doing in the years to come with our farmer son and our other children? – Too big to pass

Expensive too big to spend: Your situation reminds me of that little chart they kept on the rides for the county fair. If you’re that tall, you may or may not ride! In your case, you have a growth spurt that you have not thought of.

First, everyone buys term insurance online, or from their casualty insurance agent, or from a banker or banking institution. If your estate exceeds $13 million, it’s time to take a closer look at your estate.

The problem with all the places to buy term insurance is this – these institutions don’t understand the effect of having huge amounts of term insurance inside your estate.

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With any life insurance policy, you are the insured AND/OR the premium payer AND/OR the owner and the death benefits are included in your estate for estate tax purposes.

The IRS simply states that if a person owns or pays out a policy on themselves or their spouse, the death benefit proceeds will be included in the deceased’s estate for estate tax purposes – at the rate of 40%.

If you are buying from a bank, the bank first wants to make sure that all loans will be repaid in the event of death. In other words, you’re not really insuring for yourself – you’re insuring for the bank and its exposure. A banking institution may not care that this money ends up in your estate for tax purposes.

Once your debts have been paid to the bank, the bank may have to lend money to your heirs to pay inheritance tax. Banking institutions don’t like owners coming out of the estate – say children – because they lose control of that money when you die if the proceeds come out of the estate.

If you have a taxable estate or are approaching the current $23 million or possible future $13 million in 2025 estate tax credit, you need to restructure your life insurance as soon as possible.

Why? Since the IRS has another rule that states that if you change ownership AND premium payer of your current life insurance to someone outside of your estate to escape estate taxes, there is a rule of ” contemplation of death” for three years which stipulates that these products are always included at full face value.

This rule only applies to existing life insurance policies you own. If you have a policy with cash values ​​or have had health issues since your original policy was issued and cannot easily switch to a new term, you may have to wait three years until that death benefits are excluded.

However, if you have simple term insurance and your health hasn’t changed since the original policy was issued, you’re probably better off starting a new policy, having it held and paid for outside of your estate. by your children, and your estate does not have to wait three years. Premiums can be slightly higher, but usually you add a few years of coverage.

How do your children pay for this policy? If I have a farmer son, I will sit him down and tell him he has a new expense to pay. Then you both figure out how he can afford to pay those premiums. You both eat from the same pot, you can make sure he has enough money to pay the bonuses.

If you don’t have a child farmer, then you will need to make an annual donation each year – say at Christmas – of a little more than the premium. Not the exact amount. The child must hold the money for at least 90 days before paying the premium on their own. They can’t tell the IRS that you told them to pay the premium because that, again, shows control and ownership.

I hate to tell you guys, but there’s a fiscal tsunami heading our way and if we don’t start preparing our homes to survive, we’re going to lose 40% or more of what we’ve built over the our life.

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