A Policy to Help Protect Your LegacyThe top estate tax rate has been slowly ticking down in recent years — but estate taxes are still taking a heavy toll on affluent taxpayers. In 2004, the federal government collected more than $25 billion in estate and gift taxes.1

Although the estate tax is slated to disappear entirely in 2010, the relief for taxpayers will be fleeting. Unless Congress passes a law to eliminate the tax permanently, the federal estate tax will return to its previous 55 percent level in 2011. Most financial experts agree that the only way to deal with this uncertainty is to plan for estate taxes and hope for the best.

Last-Survivor Insurance
Survivorship life insurance is a popular estate conservation tool for couples who want to help protect their legacy from estate taxes. Because this type of policy pays a benefit after the death of the last-surviving insured individual, it can provide heirs with much-needed cash to help cover final expenses and estate taxes. As a result of the unlimited marital deduction, when one spouse dies, his or her entire estate passes to the surviving spouse without becoming subject to estate taxes. (The surviving spouse must be a U.S. citizen.)

When the second spouse dies, however, federal estate taxes reaching up to 46 percent (in 2006) come due on whatever portion of the estate exceeds the prevailing exemption amount ($2 million in 2006). This means that individuals inheriting an estate worth $3 million could owe up to $460,000 in federal estate taxes. Because estate taxes are typically due within nine months of the surviving spouse's death, heirs could be forced to sell property, liquidate other assets, or take out a loan in order to make the payment on time.

The benefit from a survivorship life insurance policy can help provide funds so the heirs can pay the bill rather than dipping into their inheritance. The cost and availability of life insurance depend on such factors as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved.Many people work and save throughout their lives to leave a legacy to their loved ones. Survivorship life insurance can help safeguard the assets you've worked hard to build. 1) Internal Revenue Service, 2005.