Gift Taxation Issues with Second-to-Die “Survivorship Life” Insurance Policies

Gift Taxation Issues with Second-to-Die “Survivorship Life” Insurance Policies

Gift taxation becomes an important planning issue when a married couple wants a very large policy to be owned by a third party so it will not be included in their estates and also wants to make gifts of premiums at minimal gift tax cost. If a son or daughter, for instance, owns the policy outright, the parents may make tax-free joint gifts of up to $30,000 (as indexed for inflation in 2019) each year…

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Estate Taxation Issues with Second-to-Die “Survivorship Life” Insurance Policies

Estate Taxation Issues with Second-to-Die “Survivorship Life” Insurance Policies

Survivorship Life (SL) is treated in the same manner as other types of insurance for estate tax purposes, with certain special consideration, and policy pays death proceeds only upon the second death of two insureds. Estate tax consequences may or may not arise as of the first death depending on who owns the policy. (Throughout the following discussion, please keep in mind that insurance proceeds received by an insured’s estate generally are also included in…

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Income Tax Implications in Split Dollar Life Insurance Plans

Income Tax Implications in Split Dollar Life Insurance Plans

Survivorship Life (SL) policies provide a significant income tax advantage while both insureds are alive when an employer uses the policy in a split dollar arrangement. In a basic endorsement split dollar plan with a single life policy, the employee generally is taxed on the term cost of the insurance as measured by the lesser of the P.S. 58 costs or Table 2001 rates (for plans entered into after January 28, 2002) or the actual…

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Important Tax Implications of Second-to-Die Life Insurance

Important Tax Implications of Second-to-Die Life Insurance

Survivorship Life (SL) is treated in the same manner as other types of life insurance for income tax purposes. Death benefits are paid tax free. If the policy is not classified as a Modified Endowment Contract (MEC), nonannuity distributions or withdrawals will be taxed on the “cost recovery” or first-in first-out basis. That is, amounts received will be treated as a tax-free recovery of investment in the contract until the entire cost basis is recovered….

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Our Experts Explain Survivorship Riders Found in Second-to-Die Life Insurance

Our Experts Explain Survivorship Riders Found in Second-to-Die Life Insurance

Survivorship riders are a form of guaranteed purchase option. A survivorship rider naming someone other than the insured as the “designated life” is attached to a single life policy. If the designated life dies before the insured, the policyowner has the right to increase coverage on the insured without evidence of insurability. The rider provides “wait-and-see” flexibility because the policyowner may exercise the right to the full amount of additional insurance or any portion thereof….

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Important Policy Features of Second-to-Die Life Insurance

Important Policy Features of Second-to-Die Life Insurance

Competition and special needs have fostered the development of a number of new Survivorship Life (SL), which is also called second-to-die or last-to-die life insurance, product innovations including: Graduated premiums – Graduated premium policies that start with lower premiums which increase over time may make an SL plan more affordable for couples who expect to have a greater premium-paying capacity over time. They should exercise care in selecting these policies, however, because they may fail…

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Disadvantages of Second-to-Die Life Insurance

Disadvantages of Second-to-Die Life Insurance

Survivorship Life (SL), which is also called second-to-die or last-to-die life insurance, provides no death benefits upon the first death. If coverage is desired or needed for the first death, a special rider paying the desired amount can be added to the SL policy. Otherwise, one should consider a combination of SL and joint life (first-to-die) insurance with death benefits associated with each policy appropriate to the need. In term/permanent plans, there is a risk…

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5 Advantages of Second-to-Die Life Insurance

5 Advantages of Second-to-Die Life Insurance

There are a variety of advantages to using Survivorship Life (SL), which is also called second-to-die or last-to-die life insurance. This article will explain 5 of those advantages, and how they can be utilized to make the best possible decision. If used in conjunction with the unlimited marital deduction, proceeds are payable when needed—at the second death. Premiums are lower than for equivalent coverage in two separate policies. A number of alternative term/permanent life combinations…

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5 Situations to Consider Second-to-Die Life Insurance

5 Situations to Consider Second-to-Die Life Insurance

There are a variety of circumstances that could stir one to utilize Survivorship Life (SL), which is also called second-to-die or last-to-die life insurance. This article will explain 5 of those circumstances that may want to be considered. To provide estate liquidity at the second death of a married couple – Couples most often use SL where there is a substantial estate and the couples plan to make heavy use of the marital deduction. Use…

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An Introduction to Second-to-Die Life Insurance

An Introduction to Second-to-Die Life Insurance

In its pure form, Survivorship Life (SL), which is also called second-to-die or last-to-die life insurance, is a life insurance policy or, often, a combination of policies and riders that pays a death benefit only when the last of two or more named insureds dies. It is most frequently used to insure two lives, typically a husband and wife, but some companies offer products that will insure three or more lives. The three-or-more-insureds policies offer…

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