3. Should I Cancel My Life Insurance because of the New Tax Law? By Thomas D. Begley, III In December 2010, Congress and President Obama passed legislation, which, in part, significantly altered the federal estate tax. For the next two years, there is a federal estate tax exemption of $5,000,000 per person. With a proper post-mortem election, a couple can preserve $10,000,000 without any pre-mortem planning. Of course, with proper planning, this $10,000,000 objective can be attained as well. In light of this great expansion of the federal estate tax exemption, many individuals are understandably questioning whether or not they need to maintain current levels of life insurance. For some individuals, it may no longer be necessary for life insurance to be maintained. However, for the vast majority of individuals, they should keep their life insurance policies intact. There are a variety of uses for life insurance. The three primary uses are as follows. First, it is an excellent vehicle to provide for a family in which there are young children and in which a surviving spouse may have limited income. In this situation, maintenance of life insurance is necessary to ensure that a surviving spouse and/or minor children are financially secure. Second, life insurance provides an excellent source of liquidity. Many estates are comprised of assets, which are predominantly illiquid or inadvisable to liquidate. Such estates are those, which include real property, which may take some time to sell, and retirement plans, which generate significant income taxes if liquidated at rates quicker than required for minimum distributions. Third, life insurance can minimize or avoid death taxes. These include not only the federal estate tax, but various state estate and inheritance taxes as well. When you are reviewing your estate plan with respect to these tax law changes, please feel free to contact us for assistance. We are happy to help. Source: Tom Begley, III Begley Law Group, 509 South Lenola Road, Building 7, Moorestown, NJ 08057. Tom Begley is a speaker at the Annual Nuts & Bolts of Elder Law program in April.
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